Broadcom will help OpenAI design its own chips in new multi-year partnership

OpenAI is buying 10 gigawatts of computer chips from Broadcom (AVGO) as part of a multi-year partnership that the two companies announced on Monday.

OpenAI will design its custom AI accelerators utilizing Ethernet and other networking solutions from Broadcom. The collaboration will support OpenAI’s plan to begin designing its own artificial intelligence chips.

This will be the first time the company will produce its own chips.

Terms of the deal were not disclosed, but the Financial Times noted that the substantial chip order means that OpenAI could be spending between $350 billion to $500 billion. OpenAI said the racks will be deployed across its facilities and partner data centers in order to meet the surging demand for artificial intelligence.

“Partnering with Broadcom is a critical step in building the infrastructure needed to unlock AI’s potential and deliver real benefits for people and businesses,” Sam Altman, co-founder and CEO of OpenAI, said in a statement.

“Developing our own accelerators adds to the broader ecosystem of partners all building the capacity required to push the frontier of AI to provide benefits to all humanity.”

In a podcast on Monday addressing the deal, Altman said that OpenAI has been working with Broadcom over the past 18 months designing a new custom chip, and more recently they’ve been working together on developing a whole custom system.

He indicated that the 10 gigawatt racks will be deployed beginning in late 2026.

Altman also said on the podcast that the chips being deployed with Broadcom have been designed specifically for inference, which is when AI responds to a user’s request – like it does on the ChatGPT platform.

Broadcom’s stock closed up nearly 10% on Monday.

Broadcom builds ‘formidable position’ with AI accelerators

OpenAI has been on a massive spending spree over the past few weeks, purchasing 10 gigawatts of chips from Nvidia (NVDA) in September and then 6 gigawatts from Nvidia rival AMD last week.

The company also signed a contract with Oracle on a data center deal that could end up being worth $300 billion over the next five years.

“Broadcom’s collaboration with OpenAI signifies a pivotal moment in the pursuit of artificial general intelligence,” Hock Tan, president and CEO of Broadcom, said in a statement.

“OpenAI has been in the forefront of the AI revolution since the ChatGPT moment, and we are thrilled to co-develop and deploy 10 gigawatts of next- generation accelerators and network systems to pave the way for the future of AI.”

William Kerwin, a senior equity analyst for Morningstar, said in a note in September that Broadcom will likely “hold a formidable position in custom artificial intelligence accelerators” as hyperscale cloud vendors look to reduce their reliance on Nvidia.

And it’s the semiconductor giant’s networking solutions, which is key to its collaboration with OpenAI that will continue to drive its growth during the AI boom.

“In our view, Broadcom’s networking chip business is its strongest and contributes heavily to the firm’s wide economic moat,” Kerwin said. “We expect it to retain a dominant position in merchant silicon for switching and routing applications, where we see it as best-of-breed for high speeds.”