1 OpenAI Partner That Could Soar in 2026 (Hint: It's Not AMD)

The article posits Broadcom (AVGO) as a more compelling AI investment than AMD, despite AMD's recent partnership with OpenAI. Broadcom's AI semiconductor division reported a 63% revenue increase to $5.2 billion in Q3 FY2025, driven by its custom AI accelerators (XPUs) designed for specific client workloads, which offer cost and performance advantages over general-purpose GPUs. Analysts link OpenAI to a potential $10 billion deal for Broadcom's custom chips, contributing to a projected serviceable market of $60-$90 billion by 2027 from existing clients, which could double Broadcom's current revenue and support its premium 51x forward earnings valuation.

Analysis

Broadcom (AVGO) is positioned as a compelling investment in the AI semiconductor landscape, driven by its custom AI accelerators (XPUs) which offer cost and performance advantages over general-purpose GPUs. The company's AI semiconductor division reported robust growth, with Q3 FY2025 revenue increasing 63% to $5.2 billion, and Q4 revenue projected at $6.2 billion, indicating strong market traction.

Analysts have linked Broadcom to a significant $10 billion deal with OpenAI for its custom chips, reinforcing its strategic partnerships. This potential deal, alongside existing client engagements, contributes to a projected serviceable addressable market of $60 billion to $90 billion by 2027, suggesting a potential doubling of Broadcom's current revenue.

Despite a premium valuation of over 51 times forward earnings, which is lower than AMD's 60 times, this multiple is considered demanding. However, the substantial growth projections for its custom AI accelerators could justify this valuation if the company successfully realizes its 2027 revenue targets and continues to secure new high-profile clients.

Key Decisions for Investors

• Investors should closely monitor Broadcom's progress in securing and expanding its custom AI accelerator client base, particularly the potential OpenAI deal, as these partnerships are critical to realizing its ambitious revenue growth projections.
• Evaluate the sustainability of Broadcom's premium 51x forward earnings valuation against the actualization of its projected $60-$90 billion serviceable market by 2027, as this growth is essential to justify current pricing.
• Consider Broadcom's strategic advantage in custom AI solutions over more generalized GPU providers, but remain cognizant of execution risks and competitive pressures in the rapidly evolving AI chip market.