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Shares of custom chipmaker Broadcom just hit an all-time high.
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The stock is riding the AI wave, but its biggest opportunity is still ahead.
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The addition of OpenAI as a customer could be a game-changer.
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10 stocks we like better than Broadcom ›
Broadcom (NASDAQ: AVGO) has been one of the biggest winners of the artificial intelligence (AI) boom, with its stock already up nearly 50% this year and hitting new all-time highs. A move like that often raises the question of whether it’s too late to buy the stock.
In Broadcom’s case, the answer is no. The company has a much larger AI opportunity in front of it, and the market is only starting to recognize how big that could be.
Broadcom’s edge comes from its custom AI chip business, where it works with hyperscalers (owners of massive data centers) to design chips built for specific workloads. This is very different from Nvidia‘s off-the-shelf graphics processing unit (GPU) business, although in many cases, these custom chips are taking the job of a GPU.
Broadcom helps its customers develop what are called application-specific integrated circuits, or ASICs. These chips can take years to design and are created for customer-specific purposes. As such, they tend to deliver better performance and have lower power consumption for the particular tasks for which they’ve been designed compared to the more flexible GPUs.
Broadcom first proved itself when it helped Alphabet design its Tensor Processing Units. Those chips are now a critical piece of Alphabet’s cloud computing infrastructure and have given it a performance edge over rivals. Broadcom has since landed multiple new customers, including Meta Platforms and ByteDance. Management has said these three customers alone represent a $60 billion to $90 billion market opportunity in fiscal 2027 (ending in October 2027).
That would be a huge win by itself, but Broadcom recently revealed a fourth customer, which analysts widely believe is OpenAI, with an order topping $10 billion for next year (fiscal 2026). The timing matters here, as Broadcom had been talking about fiscal 2027 as the year its custom chip business really takes off. If OpenAI is already moving to production much earlier than expected, it means that growth is going to accelerate before then.
Adding OpenAI into the mix is a game-changer. The company has become the face of generative AI, with its models powering ChatGPT and its close ties to Microsoft helping power its AI offerings. With AI workloads exploding, OpenAI is looking to reduce its dependence on Nvidia and control costs. Broadcom is stepping right into this need, and with the inference market expected to eventually far surpass training, the demand for chips that can lower inference costs is a big one.
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Apple, meanwhile, is an even newer customer, earlier in its development timeline. Apple has been trailing in AI, which is something it surely wants to remedy, and one way to do this is with its own custom chips. Once that happens, Broadcom will have another massive revenue stream layered in on top of Alphabet, Meta, ByteDance, and now OpenAI.
This is why the stock’s rally isn’t the end of the story. Broadcom is in a position to be the go-to designer for the biggest names in tech wanting to create their own AI chips. Companies are looking for an alternative to Nvidia and for ways to reduce inference costs, and Broadcom is starting to fill that need.
Image source: Getty Images.
That said, Broadcom isn’t just a custom chip play. Its networking business is also critical to AI infrastructure, supplying components like Ethernet switches and optical interconnects that move data inside the largest AI clusters. And when the company wins custom AI chip deals, that will feed into this business as well.
On top of that, Broadcom now has a meaningful software business thanks to its acquisition of VMware. It has been streamlining VMware and shifting it to a subscription model, while also positioning it to manage AI workloads across hybrid and multi-cloud environments. That makes Broadcom an increasingly important player in enterprise AI as well.
Broadcom’s stock has already had a big run, and it’s not cheap on a forward price-to-earnings (P/E) basis, with a 38 multiple. However, the opportunity in front of it is huge, and it just got bigger with OpenAI.
The pace at which OpenAI’s custom chips moved from concept to production suggests that Broadcom may be able to speed the process along more quickly than expected. When a company the size of Apple is next in line, that’s absolutely huge. Networking and software provide additional growth levers, but the real story is Broadcom’s position as the custom AI chip partner to the biggest players in tech.
That’s why even after hitting new highs, Broadcom stock still looks like a buy.
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Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
This AI Stock Just Hit a New High, and It’s Still a Buy was originally published by The Motley Fool
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