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Investing.com -- Broadcom Inc. (NASDAQ:AVGO) stock surged 10% Monday following the announcement of a strategic collaboration with OpenAI to develop and deploy 10 gigawatts of custom AI accelerators.
The multi-year partnership will see OpenAI design the accelerators while Broadcom handles development and deployment.
The companies have signed a term sheet for deploying racks incorporating the AI accelerators and Broadcom’s networking solutions. Deployment is targeted to begin in the second half of 2026 and complete by the end of 2029.
"Broadcom’s collaboration with OpenAI signifies a pivotal moment in the pursuit of artificial general intelligence," said Hock Tan, President and CEO of Broadcom. "OpenAI has been in the forefront of the AI revolution since the ChatGPT moment, and we are thrilled to co-develop and deploy 10 gigawatts of next-generation accelerators and network systems to pave the way for the future of AI."
The partnership reinforces Broadcom’s position in the AI infrastructure market, highlighting the importance of custom accelerators and Ethernet technology for networking in AI data centers. The racks will include Broadcom’s end-to-end portfolio of Ethernet, PCIe, and optical connectivity solutions.
Sam Altman, co-founder and CEO of OpenAI, noted that the partnership is "a critical step in building the infrastructure needed to unlock AI’s potential." By designing its own chips, OpenAI aims to embed what it has learned from developing frontier models directly into hardware.
OpenAI, which now boasts over 800 million weekly active users, will deploy these systems across its facilities and partner data centers to meet growing global demand for AI computing power.
Analysts have weighed in on the announcement. Wolfe Research analyst Chris Caso noting that the deal follows similar announcements by NVIDIA and AMD in the last month.
"This announcement provides additional confidence that AVGO will grow its AI revenue in CY27, something the company didn’t explicitly confirm on its last earnings call," Caso stated. He added that Broadcom’s chip president indicated they don’t yet have a $10 billion purchase order from OpenAI, suggesting that the $10 billion order announced on the last earnings call was from a different customer.
Melius analyst Ben Reitzes reiterated a Buy rating and $415.00 price target on Broadcom, emphasizing several key points about the deal.
"This deal is incremental to what Hock Tan said would be a doubling of AI revenue in FY26 and doubling again in FY27," Reitzes noted. "OpenAI hasn’t given AVGO a purchase order yet so customer 4 with the $10B order in F326 is someone else."
Reitzes estimated that the deal for racks including all Broadcom networking could be worth approximately $20 billion per gigawatt, potentially adding at least $40 billion per year in AI revenue starting in the second half of 2026.
He also highlighted that OpenAI described the 10 gigawatts as a "drop in the bucket" for their needs, suggesting further upside potential.