One Wall Street Analyst Says This Stock Is the Best Way to Invest in Anthropic and OpenAI. He's Right.

Anthropic and OpenAI could become two of the biggest and most anticipated IPOs of this decade, joining current leader SpaceX, which went public in June. The artificial intelligence (AI) labs are arguably among the most influential companies driving the AI boom, with both seeing rapid growth and demand for their models. In fact, their breakthroughs have been key catalysts for the massive data center infrastructure investments we are seeing today.

However, D.A. Davidson analyst Gil Luria thinks that the best way to profit from the successes of these AI giants isn't by buying their shares following their upcoming IPOs, but by investing in chip designer Broadcom (NASDAQ: AVGO), and I agree. Luria said that this is the cheap way to play both stocks. He noted that Anthropic and OpenAI are poised to become Broadcom's largest ASIC (application-specific integrated circuit) customers in the next few years. Ironically, Broadcom's ties to these two AI labs are one of the biggest reasons for its recent share price weakness, but ultimately, its success will be tied to their success.

Broadcom's ties to Anthropic and OpenAI

Luria said that after reading Anthropic's prospectus, he is convinced the company will move forward with its IPO and raise additional capital. Anthropic already has $131 billion in cash on its balance sheet, and the D.A. Davidson analyst believes the AI lab's approximately 50% gross margins justify it continuing to spend aggressively. Anthropic currently has $161 billion in commitments with Broadcom. He also expects that OpenAI will proceed with its own AI next year, raising more capital to continue its AI spending.

With Broadcom trading at a forward P/E of 16 times his 2027 adjusted EPS estimates, Luria said the stock is trading as if the company has a nearly 0% chance of reaching its projections. Broadcom has said that it expects its AI revenue to double in its fiscal 2027 to $115 billion and then double again in fiscal 2028 to $230 billion, and projects that its fiscal 2028 adjusted EPS will top $30.

Broadcom was the co-developer of Alphabet's popular Tensor Processing Units (TPUs), and on its latest earnings call, it highlighted that in its fiscal 2027, Anthropic plans to deploy 5 gigawatts of them, and then another 10 gigawatts in fiscal 2028. Meanwhile, OpenAI will deploy 5 gigawatts of its Broadcom co-developed chips in fiscal 2028. Alphabet and Meta Platforms are also large Broadcom customers.

Luria asserted that the biggest dislocation in the market today is the low valuations of big chip companies like Broadcom, Nvidia, and Micron compared to other AI infrastructure and semiconductor stocks that trade between 20 times and 40 times earnings. He expects those valuations will eventually revert to the mean, and said that there isn't a world where a handful of AI semiconductor stocks do well while Broadcom, Nvidia, and Micron do not. As such, he upgraded Broadcom's stock to buy and raised his 12-month price target on it from $350 to $400.

Image source: Getty Images.

A great way to play the Anthropic and OpenAI IPOs

Both Anthropic and OpenAI are spending aggressively on AI infrastructure, and for these two companies, there really is no slowing down. Their businesses rely on having the best AI models, so they don't really have much room to stop and catch their breath. Meanwhile, their size and ties to the entire AI complex have really made them so important that it's hard to picture them failing without collapsing most of the AI infrastructure industry.

Anthropic and OpenAI have nicely diversified their AI infrastructure spending across multiple suppliers, making them increasingly important customers not just for Broadcom, but for companies throughout the AI supply chain. Broadcom, though, is one of the cheapest derivative plays for these two AI labs, and their successful IPOs should ease any fears about its ties to them.

With Broadcom growing rapidly and the stock trading at a forward P/E of less than 11 times analysts' fiscal 2028 estimates, it's a must-buy if you believe Anthropic and OpenAI will be successful companies.

Geoffrey Seiler has positions in Alphabet, Amazon, and Broadcom. The Motley Fool has positions in and recommends Alphabet, Amazon, Broadcom, Micron Technology, and Nvidia. The Motley Fool has a disclosure policy.