Broadcom AVGO shares jumped 9.88% on Monday to close at $356.70, following the announcement of its deal with OpenAI. The companies are collaborating to develop and deploy 10 gigawatts of custom AI accelerators.
Under the terms of the agreement, while OpenAI will design the accelerators and systems, Broadcom will develop and manufacture them for large-scale deployment across OpenAI’s facilities and partner data centers. Broadcom and OpenAI have a long-standing relationship involving the co-development and supply of AI accelerators. The companies have now signed a term sheet to deploy racks integrating OpenAI’s custom chips with Broadcom’s networking technologies.
Apart from OpenAI, Broadcom has a rich partner base that includes the likes of Lloyds Banking Group, Walmart, NVIDIA NVDA, Canonical, Arista Networks, Alphabet, Dell Technologies, Meta Platform, Juniper, Supermicro, among others. Broadcom is benefiting from an expanding portfolio, solid VMware business, strong balance sheet and impressive free cash flow.
Year to date (YTD), Broadcom shares have jumped 23.9%, outperforming the broader Zacks Computer and Technology sector and peers, including NVIDIA, Marvell Technology MRVL and Qualcomm QCOM. While NVIDIA and Qualcomm shares have returned 40.2% and 5.3% YTD, respectively, Marvell Technology shares have dropped 19.1%. The broader sector has returned 22.9%.
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Broadcom is benefiting from strong demand for XPUs, which are a type of application-specific integrated circuits (ASICs) necessary to train Generative AI models. They require complex integration of compute, memory, and I/O capabilities to achieve the necessary performance at lower power consumption and cost. Alphabet and Meta Platforms are notable users of Broadcom’s ASICs.
In the third quarter of fiscal 2025, AI revenues surged 63% year over year to $5.2 billion. XPUs accounted for 65% of AI revenues in the reported quarter. Consolidated backlog hit $110 billion, and the company has secured more than $10 billion of orders for AI racks based on XPU demand. AVGO’s networking portfolio is gaining from strong demand for Tomahawk 5 and 6 products, as well as the Jericho 4 Ethernet fabric router.
AVGO expanded its portfolio with the launch of the industry’s first Wi-Fi 8 silicon solutions for the broadband wireless edge ecosystem, including residential gateways, enterprise access points, and smart mobile clients. Tomahawk 6 – Davisson (TH6-Davisson), the company’s third-generation Co-Packaged Optics (CPO) Ethernet switch, is now being shipped. TH6-Davisson is specifically designed for the accelerating demands of AI networking, as it delivers an unprecedented 102.4 terabits per second of optically enabled switching capacity.
A strong portfolio and rich partner base are expected to drive top-line growth. AVGO expects fourth-quarter fiscal 2025 Semiconductor revenues of $10.7 billion, suggesting 30% year-over-year growth. Infrastructure Software revenues are expected to grow 15% year over year to $6.7 billion.
