Shares of Broadcom (AVGO 2.92%) exploded higher last month after the company signed a mega-deal with artificial intelligence (AI) start-up OpenAI. OpenAI has been aggressively securing AI computing capacity in recent months as the company plans for exponential growth over the next few years. Broadcom stock gained 12% in October, according to data provided by S&P Global Market Intelligence.
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A 10-gigawatt AI supply deal with OpenAI
Broadcom and OpenAI announced on Oct. 13 that the two companies would collaborate on custom AI accelerators. OpenAI will design the chips and systems, the latter of which will include Ethernet and other connectivity solutions from Broadcom. Broadcom will also play a role in the development and deployment of the custom AI chips and systems.
In total, the collaboration will deliver AI chips that will consume 10 gigawatts of power. The revenue opportunity for Broadcom is significant, with some analysts estimating that Broadcom could generate between $150 billion and $200 billion in revenue over the course of the deal.
The first systems are expected to be deployed by Broadcom in the second half of 2026, with the full 10 gigawatts of capacity expected to be online by the end of 2029. For reference, Broadcom's annual revenue was about $51 billion in fiscal 2024, so the deal could greatly boost revenue.
While Broadcom stock surged on the deal, all that revenue isn't a sure thing. OpenAI has made multiple large commitments that will require the company to raise a prodigious amount of cash while growing revenue rapidly over the next few years. If the company stumbles, or if the AI boom peters out, Broadcom could be left in a lurch.
Other OpenAI deals include an agreement with Oracle to purchase $300 billion in AI computing capacity, a $38 billion compute deal with Amazon, a 10-gigawatt deal with Nvidia, and a 6-gigawatt deal with AMD. Where OpenAI gets the money to pay for these deals is the trillion-dollar question.
NASDAQ: AVGO
Key Data Points
Is Broadcom stock a buy?
Broadcom is benefiting from the push to create custom AI chips as companies look to lower their dependence on Nvidia. The company also signed a $10 billion deal with an unnamed customer recently, which Broadcom confirmed was not OpenAI. Even absent the OpenAI deal, Broadcom's AI-related revenue would be surging.
The mega-deal with OpenAI could push Broadcom's revenue to new heights, but the company is now far more exposed to an AI bust than it was prior to this deal. For investors, that's an important risk to consider as Broadcom puts its trust in OpenAI.
