OpenAI has announced partnerships with several key computing providers in recent weeks.
AMD’s deal with OpenAI has shaken up the artificial intelligence (AI) investing landscape. By partnering with OpenAI, AMD is making an effort to bring its AI chips into the mainstream by giving OpenAI favorable terms for using them. This ripple effect could be a huge boost for AMD, but I still don’t think it’s the best OpenAI partner to invest in right now.
I’d much rather invest in Broadcom (AVGO -5.90%), which is another company that has recently partnered up with OpenAI, although there is still a bit of speculation behind that deal. I think Broadcom is much better positioned to be a winner over the next few years, and I think it could soar in 2026.
Broadcom is involved in a ton of different tech offerings. It has products ranging from cybersecurity to mainframe software and hardware to a virtual desktop platform via the acquisition of VMware. However, its most promising product lineup is its artificial intelligence division, which has delivered stellar growth in recent quarters. During Q3 FY 2025 (ending Aug. 3), Broadcom’s AI semiconductor revenue rose 63% to $5.2 billion. It expects $6.2 billion in Q4 semiconductor revenue, so it’s clear that this division is knocking it out of the park.
Broadcom’s AI division has two primary products: connectivity switches and custom AI accelerators. Connectivity switches are used in data centers everywhere to stitch information back together after being processed by multiple computing units. There is a major market for these devices, but it pales in comparison to the demand for its custom AI accelerator chips.
Graphics processing units (GPUs) from AMD or Nvidia are fantastic for accelerated computing applications like AI, but they’re also useful for other tasks like mining cryptocurrency, processing engineering simulations, and drug discovery. This flexibility doesn’t come for free and adds to the costs of chips. Furthermore, the companies that use them for AI training and inference run different styles of workloads, so this flexibility is a big deal in developing a neutral solution. However, this adds cost to the products, and clients of AMD and Nvidia also need to pay a markup to fund their profits.
Broadcom is offering AI hyperscalers an alternative solution, and we’re just seeing the beginning phase of its popularity growth. Broadcom’s custom AI accelerators, which it calls XPUs, are designed in conjunction with the end customer. This allows Broadcom and the client to tailor the chip specifically for the workload it sees, rather than being able to handle whatever is thrown at it. This cuts down on the cost and increases performance, making them popular alternatives.
Unfortunately for investors, Broadcom doesn’t specifically announce who its customers are. However, it’s fairly easy to link clients, and various analysts have linked OpenAI to Broadcom in a $10 billion deal that was announced during its earnings call. This could be a valuable client on top of Broadcom’s other three.
In an earlier conference call, Broadcom stated that two clients were on track to finish their designs this year, with two more starting the process. However, from their existing three clients, they believe that they will have a serviceable addressable market in the $60 billion to $90 billion range by 2027. That’s monstrous growth, and could be what Broadcom needs to send the stock soaring in 2026 as these results are realized and new customers are announced.
However, Broadcom’s stock isn’t without risk.
The market is well aware of Broadcom’s products and has given the stock a premium valuation as a result.
The stock trades for more than 51 times forward earnings (at the time of this writing), which is still cheaper than AMD’s 60 times forward earnings valuation.
However, nobody should ever claim 51 times forward earnings is “cheap,” and Broadcom has a ton of growing to do to make the valuation reasonable. Still, these ratios are based on analysts’ estimates, and they could be understating Broadcom’s growth, making the stock appear cheaper than it actually is.
If Broadcom’s projection is right about 2027, and it can capture the low end of its serviceable market range ($60 billion), that would result in Broadcom’s revenue doubling by 2027 (its current revenue total is just under $60 billion).
Time will tell if that projection pans out, but if it does, I think Broadcom is the better OpenAI partner to invest in versus AMD.
