OpenAI-Broadcom agreement sends shares of chipmaker soaring

If you do your own chips, you control your destiny: Broadcom CEO Hock Tan

Broadcom Inc became the latest chipmaker to forge a blockbuster data centre deal with OpenAI, triggering a rally that added more than US$150 billion to its market value.

In a pact announced Monday, OpenAI agreed to buy custom chips and networking components from Broadcom to help power its artificial intelligence services. OpenAI had already struck deals for data centres and chips that easily top US$1 trillion, and the company plans to spend tens of billions of dollars more on Broadcom chips, according to people familiar with the matter.

The agreement, which follows OpenAI deals with Nvidia Corp and Advanced Micro Devices Inc, is meant to add 10 gigawatts’ worth of AI data centre capacity — a level equivalent to the peak energy demand of New York City.

The wrinkle with the Broadcom pact is it will let OpenAI tailor the chips to meet specific needs. The startup said it would unlock “new levels of capability and intelligence” by applying lessons gleaned from developing AI models to hardware technology.

For Broadcom, the move provides deeper access to the booming AI market. Though the company has already seen its revenue from artificial intelligence computing climb, Broadcom has remained in the shadow of Nvidia, the dominant seller of AI processors.

Investors sent Broadcom shares up 9.9% to US$356.70 on Monday, betting that the OpenAI alliance will generate major new revenue for the chipmaker. But the details of how OpenAI will pay for the equipment aren’t spelled out. While the AI startup has shown it can easily raise funding from investors, it’s burning through wads of cash and doesn’t expect to be cash-flow positive until around the end of this decade.

The eye-popping deals inked by OpenAI this year could dramatically expand the startup’s computing power. Nvidia, whose chips handle the majority of AI work, said last month that it will invest as much as US$100 billion in OpenAI to support new infrastructure — with a goal of at least 10 GW of capacity. And just last week, OpenAI announced a pact to deploy 6 GW of AMD processors over multiple years.

OpenAI's wave of AI infrastructure deals

As AI and cloud companies announce large projects every few days, it’s often not clear how the efforts are being financed. The interlocking deals also have boosted fears of a bubble in AI spending, particularly as many of these partnerships involve OpenAI, a fast-growing but unprofitable business.

While purchasing chips from others, OpenAI has also been working on designing its own semiconductors. They’re mainly intended to handle the inference stage of running AI models — the phase after the technology is trained.