After a sharp month-long slide, Broadcom Nasdaq:AFGO It turned its fortunes around in a huge way.
Broadcom today
As of 04:00 PM ET
- 52 week range
- $138.10
▼
$374.23
- Dividend yield
- 0.68%
- P/E ratio
- 89.11
- Price target
- $372.33
Shares of the chip giant reached an all-time high closing price of nearly $369 on September 9. This came as markets reacted to the AI-incentive pay package introduced by CEO Hock Tan. But the gains were short-lived, as the stock fell nearly 12% at market close on October 10. MarketBeat noted at the time that Tan’s 10% one-day gain led to unwarranted sentiment. Therefore, it was not too surprising to see the stock right.
However, everything changed on October 13, when Broadcom has announced its latest customer AI chipset:OpenI. This deal sent shares up 10% in one day as markets reacted to the billions in new sales that Broadcom should generate from the deal. Here’s why the OpenAI deal is a game-changer, and what it means for AVGO moving forward.
Broadcom matches NVIDIA in AI power and surpasses AMD
In the announcement, Broadcom said that OpenAI will deploy ten gigawatts (GW) of dedicated AI accelerators, also known as XPUs. For reference, this is equivalent to about a third of the energy needed to power New York State During peak demand in the summer. That’s a lot of chips.
The Broadcom deal is significantly equal to the 10 GW deal that OpenAI signed with NVIDIA Nasdaq: NVDA. It is also much larger than the 6 GW deployment that OpenAI has agreed to with Advanced Micro Devices Nasdaq: AMD. This clearly shows that although AMD is gaining more attention, Broadcom and NVIDIA are still on top of their own when it comes to AI chips.
Broadcom will not only manufacture dedicated AI XPUs for OpenAI, but also networking chips. While the XPUs do the difficult computations that drive AI workloads, networking chips allow different XPUs to communicate. Thus, Broadcom’s deal with OpenAI includes a wide range of products, making it far more important than the XPU deal alone.
XPUs typically make up 70% of Broadcom’s AI semiconductor revenue, while networking chips make up the other 30%. Networks’ share of this total has significantly reached 40% in recent quarters. Both represent a very important part of the company’s AI business, underscoring how important it is to include both technologies in the deal.
Furthermore, this provides evidence that Broadcom’s Ethernet-based networking technology is competitive with NVIDIA’s networking offerings. Staying competitive on this front is especially important now, since NVIDIA’s OpenAI deal also includes networking equipment. The communication battle between these two companies is somewhat overlooked but very important. With this win, Broadcom continues to show that it is a top-tier name in the field of artificial intelligence.
Broadcom’s Q3 announcement looks better now
Another interesting problem with this story is that the analysts were wrong about Broadcom, but in a great way.
In its third-quarter earnings call, Broadcom announced it had acquired another customer for hyper-scaling of its AI chips. After the company revealed that the value of this deal was about $10 billion, many believed that the client was OpenAI. When asked directly about thisBroadcom’s Semiconductor Solutions Group President, Charlie Kawas, refuted this claim. He said he had not received a $10 billion purchase order from his “dear friend Greg,” referring to OpenAI chief Greg Brockman.
Thus, Broadcom has added not just one, but two major clients over the past few months: OpenAI and one other. This makes the company’s previous statement that it had acquired a new hyper-scaling customer even more impressive than before.
AVGO continues its momentum, and updated targets see 13%+ upside
Broadcom stock forecast today
$372.33
6.58% upHe buys
Based on 34 analyst ratings
| Current price | $349.33 |
|---|---|
| High expectations | $460.00 |
| Average expectations | $372.33 |
| Low expectations | $210.00 |
Broadcom stock forecast details
It’s clear that Broadcom is still one of the major companies in the driver’s seat when it comes to building AI infrastructure.
These new deals provide further confidence that Broadcom appears well-positioned to turn around the other three companies it is said to be in talks with.
Overall, the outlook for this stock still looks very promising in the long term.
Shares are now only down about 4% from their all-time highs, meaning the upside may be somewhat limited in the near term. Broadcom’s earnings release in December could be another bullish catalyst for the stock.
MarketBeat’s consensus price target on AVGO is $372, which implies about a 5% upside in the stock.
However, every price target update tracked by MarketBeat after the OpenAI announcement hits $400 or higher. This means a rise of at least 13% in the shares and indicates that the shares may reach new highs.
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