Broadcom's new partnership with OpenAI for a 10 GW custom accelerator is poised to significantly boost its AI segment, with the company estimated to capture 50% of a ~$175 billion market over 3.5 years, validating its AI stack and improving revenue visibility. This momentum is reflected in Q4'25 guidance of $17.4 billion revenue (+24% YoY), including $6.2 billion from AI semis (+66% YoY), driven by $10 billion in XPU-rack orders from OpenAI. While gross margins are expected to decline by 70 bps in Q4 due to a higher XPU mix, an analyst reiterates a "strong buy" rating on AVGO, anticipating explosive growth in H2 2026 despite its premium valuation.
Broadcom's new partnership with OpenAI for a 10 GW custom accelerator significantly validates its AI stack and improves revenue visibility. This collaboration is estimated to capture 50% of a ~$175 billion market over 3.5 years for Broadcom. The company's Q4'25 guidance reflects this momentum, projecting $17.4 billion in total revenue (+24% YoY) and $6.2 billion from AI semiconductors (+66% YoY), driven by $10 billion in XPU-rack orders from OpenAI. Despite strong top-line growth, Broadcom faces margin pressure, with gross margin falling 100 basis points in Q3 and guided down another 70 basis points in Q4. This decline is attributed to a higher XPU product mix and slower infrastructure revenue. However, the analyst reiterates a "strong buy" rating on AVGO, arguing that the premium valuation is justified by anticipated "explosive growth" in H2 2026. This bullish stance is supported by the significant revenue contribution expected from the OpenAI deal and the company's overall AI semiconductor trajectory.
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strongly positive
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