Broadcom Shares Surge on $10 Billion AI Chip Deal, Signaling Success of AI Strategy

Shares of chipmaker Broadcom (AVGO.O) jumped 15% on Friday after the company announced a blockbuster $10 billion AI chip order from a new customer, boosting optimism about its ability to capitalize on the generative AI boom.

The deal strengthens Broadcom’s position as a leading custom chip supplier at a time when major tech firms are eager to diversify beyond Nvidia’s (NVDA.O) costly and limited-supply AI processors.

“We agree Broadcom is gaining share, but we also believe the AI opportunity could be much larger,” analysts at BofA Securities noted.

The latest order is expected to reinforce investor confidence in AI momentum, which had shown signs of cooling this year. Broadcom shares, which more than doubled in value last year, are already up 32% in 2024. If Friday’s gains hold, the chipmaker could add more than $200 billion to its $1.44 trillion market valuation, having only crossed the $1 trillion mark last year.

The scale and timing of the order have fueled speculation that OpenAI may be the unnamed customer. Analysts at JPMorgan, Bernstein, and Morgan Stanley pointed to these factors as strong indicators, while Reuters previously reported that OpenAI was working with Broadcom to develop its first in-house chip.

Though Broadcom has not disclosed the names of its cloud partners, analysts widely believe that Google (GOOGL.O) and Meta Platforms (META.O) are among its existing customers.

Bernstein analysts suggested that with this new customer onboard, Broadcom’s AI sales could exceed $40 billion by fiscal 2026, well above the previous estimate of $30 billion. The company itself said it expects “significant acceleration” in AI revenue growth during that period.

Adding further momentum, CEO Hock Tan announced he will remain in his role for at least another five years. Tan, 73 at the time of Broadcom’s March proxy filing, has led the company for nearly two decades, steering it to the forefront of the AI boom.