Broadcom Stock Investors Just Got Fantastic News From OpenAI
Key Points
Broadcom and OpenAI have joined forces on a new custom AI chip.
Jalapeño, as the processor is called, was designed for peak efficiency when running ChatGPT and other large language models (LLMs).
Broadcom expects its AI-related chip revenue to grow more than 100% by 2027.
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Broadcom (NASDAQ:AVGO) has been on a blistering run in recent years, but those gains have been accompanied by significant volatility. The artificial intelligence (AI) chipmaker has gained 580% since the advent of AI in early 2023, but has fallen 10% or more on at least nine separate occasions and is currently 21% off its peak. Case in point: Broadcom stock crashed 41% in early 2025, so it isn't for the faint-hearted.
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Uncertainty about the future of AI adoption has some investors sitting on the sidelines, but the evidence continues to mount that the company has a bright future.
Broadcom and OpenAI have joined forces to create an AI chip that the pair believes will be a game changer. The companies unveiled the custom-built processor, dubbed "Jalapeño," on Wednesday, marking OpenAI's first foray into physical silicon development.
Image source: The Motley Fool.
A spicy new AI processor
The new chip is the first step in OpenAI's long-term strategy to design computer chips and accessories that will underpin its evolving AI models. In a joint news release, Broadcom and OpenAI noted that they went back to the drawing board to design Jalapeño, which was "built from the ground up" and optimized for the unique demands of large language models (LLMs).
Jalapeño was designed specifically to be more efficient when working with ChatGPT and Codex, OpenAI's coding agent. It was also intended to work well with LLMs that the company develops in the future.
On an intriguing note, OpenAI revealed that the chip was designed with the help of its AI models. In an interview with CNBC, OpenAI president Greg Brockman said, "The degree to which our models have been able to accelerate [the chip development process] was very surprising to us."
While the chip's final performance testing isn't yet complete, early results suggest that Jalapeño’s performance per watt will be "substantially better" than current cutting-edge processors.
The breakthrough design focuses on reducing data movement across the chip and balancing the demands on compute, memory, and networking resources. In doing so, the processor achieves performance that is much closer to theoretical peak performance.
For example, one of the biggest drags on processing speed -- or latency -- is the need to move information around the chips. By minimizing data movement and reducing latency, OpenAI believes it will speed the next generation of AI inference -- the tasks for which AI models are designed.
Brockman also said, "By designing more of the stack ourselves, we can serve more intelligence with greater efficiency and keep pushing advanced AI toward broader access." In essence, making AI more widely available.
Broadcom CEO Hock Tan noted that this was the first step in a "multi-generation roadmap." He went on to say that the collaboration represents a "fundamental commitment to scaling the physical infrastructure required for the next decade of AI.
What this means for Broadcom investors
Broadcom's biggest customers are among the tech elite, including such high-profile names as Alphabet, Meta Platforms, TikTok parent ByteDance, AI start-up Anthropic, and -- of course -- OpenAI. The company continues to expand its relationships with existing customers, which bodes well for the future.
Earlier this year, Tan said, "We have line of sight to achieve AI revenue from chips, just chips, in excess of $100 billion in 2027." For context, Broadcom's total revenue was roughly $64 billion in 2025, and its AI semiconductor revenue was just $10.8 billion in Q2, helping to underscore the magnitude of the growth yet to come.
Yet for all that opportunity, the stock is selling for 19 times next year's expected earnings. That's an attractive price for an industry leader driven by strong secular tailwinds.
That's why Broadcom is a buy.
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Danny Vena, CPA has positions in Alphabet, Broadcom, and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Broadcom, and Meta Platforms. The Motley Fool has a disclosure policy.
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