Why Broadcom's bet on Openai is a big risk

Copyright © HT Digital Streams Limit all rights reserved. ASA Fitch, The Wall Street Journal 3 min Read 14 Oct 2025, 04:26 pm ist Broadcom shares rose after the news on the agreement came out. David Paul Morris/Bloomberg Summary Broadcom is hooking his future to the vision of Sam Altman. Broadcom’s agreement to develop a large number of chips and computer systems with Openai is welcomed by investors. But it is not as clear victory as the company’s share suggests. The agreement limited a flurry of treaty between Openai and the world’s largest AI chip providers, including Nvidia and advanced microvacies. Everyone involves opening billions of dollars on data centers with hundreds of thousands of chips. Broadcom’s share rose 9.9% on Monday after news of the agreement. The scope of Openai’s offers is striking: Together, it would mean that the data centers with chips and other computer infrastructure are filled that consumes 26 gigawatts of electricity – an amount that would dwarf in the summer that the city of New York uses. And yet it is only a tenth of what CEO Sam Altman has recently told employees that he wants to build in the next eight years. The thing is that it is not clear how opened for it all will pay, including the agreement with Broadcom. Openai’s revenue this year is expected to amount to about $ 13 billion, a significant amount for a start, but nowhere close enough to justify Altman’s exuberance. The company told investors that it would only be profitable in 2029. Of course, Openai hopes to grow revenue so fast that today’s talk to spend hundreds of billions of dollars on AI chips looks cute within a few years. The story of AI, according to Altman’s narrative, is one of exponential growth where competitors who are now at risk are later left behind. Altman has discussed new instruments to help finance his pursuit; The realization that they are increasingly involving large amounts of debt. For Broadcom, however, it is a big bet on a Chancy customer. It can pay off nicely: Bernstein research analyst Stacy Rasgon on Monday estimated that more than $ 100 billion worth of extra revenue could be possible within the next three to four years of the agreement. But it is a risk, and there is reason to doubt whether Altman will achieve anything near the full extent of his ambitions. Take a look at the full image of why Broadcom’s bet on Openai is a big risk to put the bet in itself, also costs Broadcom. Building custom chips and AI computer infrastructure with Openai are expensive, and systems that develop it with Openai cannot easily be transferred to other clients as open -falters. In a recent discussion with Rasgon, Broadcom CEO Hock Tan said while developing large AI systems will increase Broadcom’s earnings, they would dilute his gross margins, although he did not say how much. In this sense, Broadcom makes an even greater bet on Openai than Nvidia or AMD. However, the two thing is still about their attention, which can promote the price competition and the pressure of the margin for Broadcom. In a sign that Broadcom’s customized Chip business is already under competitive threat, Alphabet’s Google, the company’s anchor client, started working with Taiwan’s MediaKek on Custom Ai discs. Investors seem to be content to ignore such concerns, as it has been for some time. Broadcom is essentially an abuse of chip and software companies that do not cross regularly, but still investors were willing to pay a premium for its shares: they are now trading about 40 times next year’s earnings. That is, to some extent, logical, as Tan’s merciless focus on expressing efficiency and profits has yielded a business with growing earnings and overall gross margins above 70%. But it is still difficult to explain why Broadcom’s advance earnings ratio above that of Nvidia FAR and the market leader, and a business with a larger set of AI chip customers for most of this year. Cozaing with Openai can produce the stage for years of bleeding sales at Broadcom. With Openai’s future drive on a great vision that does not have a clear financial model, investors should not see it as something close to a sure thing. Write to ASA Fitch at [email protected], catch all the corporate news and updates on live currency. Download the Mint News app to get daily market updates and live business news. More Topics #Openai Read Next Story