Key Points
- Broadcom and OpenAI unveiled Jalapeño, OpenAI's first Intelligence Processor, advancing their 10-gigawatt partnership toward a potential $200 billion revenue opportunity.
- Significant revenue from the OpenAI deal is not expected until 2027, reflecting the lengthy design and deployment cycle inherent to Broadcom's custom ASIC business model.
- Broadcom shares currently trade at roughly 62x earnings, well below their three-year average P/E of approximately 80x, as the OpenAI opportunity moves closer to generating revenue.
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Shares of semiconductor giantBroadcom (NASDAQ: AVGO) got pummeled after the company’s last earnings report, dropping nearly 20% in two days. Possibly the biggest reason for the company’s large post-earnings decline was its decision not to raise its AI semiconductor revenue guidance.
In its fiscal year 2027, Broadcom continues to place its sales forecast at over $100 billion for this segment. However, there is a belief in the market that Broadcom’s AI semiconductor sales will be much higher than $100 billion. CEO Hock Tan himself alluded to this, saying in the company’s last earnings call, “2027 will exceed very easily $100 billion.”
One customer that is likely to play a significant role in Broadcom reaching and potentially soaring past this milestone is ChatGPT maker OpenAI. In 2025, the two companies announced a massive 10-gigawatt (GW) partnership, where Broadcom will develop chips for OpenAI. Notably, the two firms just took a key step forward in their partnership: unveiling Jalapeño, OpenAI’s first Intelligence Processor. For Broadcom, Jalapeño isn’t just a fancy new chip; it’s the key to unlocking a huge revenue opportunity over the coming years.
Jalapeño: Unlocking the Door to $200 Billion in Revenue?
Approximately nine months ago, Broadcom and OpenAI announced their 10 GW partnership. At that time, Broadcom noted that it would not start deploying AI chips and systems for the partnership until the second half of 2026. With the firms just now unveiling Jalapeño, it appears that the partnership is progressing right on schedule. In turn, Broadcom’s plan to convert its 10 GW partnership into a large revenue stream is on track.
GWs are a standard unit of measurement for evaluating the size of data center deployments, and each one can translate into billions of dollars in revenue. In fact, in a Broadcom earnings call, Bernstein analyst Stacy Rasgon estimated that Broadcom’s revenue opportunity was in the range of $20 billion per GW. While the revenue opportunity per GW can vary significantly, Hock Tan said the reality was “not far from” Rasgon’s estimate.
Thus, while acknowledging that these estimates are not precise, it is possible that Jalapeño marks an early step in Broadcom unlocking a $200 billion opportunity. While 10 GWs are not expected to be fully deployed until the end of 2029, that would be a massive revenue driver, nonetheless. Notably, Broadcom’s total revenue over the last 12 months was “only” around $75.5 billion.
OpenAI: A Testament to Broadcom’s Long-Term Partnerships
The potential size of this opportunity highlights the value of the long-term partnerships that Broadcom engages in. Notably, the two firms announced their partnership nine months ago. However, investors are only now getting a substantial update. Furthermore, significant revenue generation from the deal will not begin until 2027, as revenue will be small through the rest of 2026. This equates to well over a year between the deal announcement and substantial sales. That may seem like an uncomfortably long timeline, but it is exactly what investors should expect from Broadcom.
This is due to the nature of Broadcom’s AI chips. Broadcom designs application-specific integrated circuits (ASICs). ASICs are fundamentally different from NVIDIA’s (NASDAQ: NVDA) graphics processing units (GPUs). GPUs are highly flexible, being able to perform many different tasks well. Due to this, they can serve a wide range of customers right out of the box.
By contrast, as their name implies, ASICs are application-specific; they perform a specific set of tasks extremely well. The tasks they perform depend on each customer's needs. Thus, Broadcom has to closely collaborate with its customers to design a customized chip in the first place.
In the case of Jalapeño, the companies designed it specifically for large language model (LLM) inference. Inference refers to when an LLM generates answers. This contrasts with training, where LLMs learn to think.
Importantly, the vast majority of revenue generation doesn’t take place until after this design phase, when the chips actually get deployed into data centers. Considering this, when Broadcom announces a new custom chip design partnership, investors should not expect it to have an immediate sales impact. Rather, investors should understand that it takes time for these sales to ramp up, and the OpenAI partnership is just another reason to have confidence in Broadcom’s long-term growth opportunities.
Broadcom’s Valuation Sinks as OpenAI Opportunity Nears Closer
Broadcom shares now trade at a price-to-earnings (P/E) ratio of around 62x. That sits substantially below its average P/E near 80x over the past three years.
Meanwhile, with Jalapeño, Broadcom’s huge opportunity with OpenAI is one step closer to becoming a reality. With its valuation down and a large growth driver not far on the horizon, Broadcom shares look well positioned going forward.
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