Wolfe Research Maintains Peer Perform on Broadcom

Wolfe Research analyst Chris Caso reiterated a Peerperform rating on Broadcom Limited (NASDAQ: AVGO).

“This morning AVGO announced a 10 GW deal with OpenAI [link], following similar announcements by peers NVDA [link] and AMD [link] in the last month.

AVGO’s agreement encompasses rack-scale systems designed by AVGO, to be deployed beginning in 2H26 and extending through the end of CY29.

The company emphasized that, in addition to custom XPUs, AVGO is also providing Ethernet-based solutions for scale-up and scale-out for these rack systems.

OpenAI and AVGO hosted a fireside chat here [link] with further details. AVGO didn’t specify the dollars associated with this deal, but the numbers are likely significant.

NVDA has stated an expectation of $35bn/GW content, and we’re assuming $15bn/GW content for AMD’s deal with OAI.

Based on the nature of custom projects, we would expect that AVGO’s content would be less than $15bn/GW (though AVGO also would supply networking components).

Also significant is a statement made by AVGO’s chip president on CNBC this morning, stating that they don’t yet have a $10bn purchase order from OAI.

If that statement is correct, it would mean that OAI was not the customer for the $10bn order announced on the last earnings call, suggesting that was an additional customer beyond the OpenAI deal announced today.

We’ve reached out to the company for clarification. Takeaways.

In our view, this announcement provides additional confidence that AVGO will grow its AI revenue in CY27, something the company didn’t explicitly confirm on its last earnings call.

In addition, the company noted that despite the deal’s announcement today, AVGO doesn’t yet have a $10bn PO from OAI [link].

This would suggest that the $10bn order they announced on the last earnings call wasn’t OAI, but a separate customer.

If that’s correct, then this OAI deal would be incremental to the deal that was announced on the earnings call.

The size of the opportunity in $ for AVGO is difficult to estimate – we are using ~ $15bn/GW for AMD and ~$35/bn GW for NVDA as rules of thumb; in AVGO’s case, we would expect a custom ASIC to be lower ASP that a GPU, which would reduce the $/GW to be lower than peers.

Still, even at $10/GW, this would suggest ~$100bn OAI revenue over 3.5 years starting in 2H26 – or $25-$30bn OAI revenue annually.

The additonal question going forward for AVGO is what the margin structure of its ASIC business will be, and how that impacts the company’s financials as ASICs become a larger and larger part of AVGO’s revenue.

We believe AVGO’s custom ASICs have GMs well below the company’s typical mid-high 70s % corporate average margins.”

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