Broadcom shares rose in pre-open trading, gaining 1.9% after OpenAI publicly unveiled a custom artificial intelligence chip named Jalapeño that the company said was co-designed with Broadcom to run AI inference workloads - the step where a deployed model like ChatGPT processes and answers user inputs.
The chip was presented on Wednesday, and both companies said they engineered it specifically for inference tasks. Broadcom CEO Hock Tan told interviewers that Jalapeño compares favorably with Nvidia's Blackwell processors and Google's tensor processing units, positioning the product as competitive with existing high-profile AI accelerators.
Analysts immediately reacted to the reveal. Bernstein reiterated its Outperform rating on AVGO and kept a $550 price target, describing Broadcom and Nvidia as deeply undervalued given the current pace of AI infrastructure spending. The bullish analyst view aligns with a broader consensus on Wall Street: 44 of 48 analysts rate AVGO a Buy, and the consensus price target sits above $520.
Investors had been contending with earlier reports of financing friction in the OpenAI-Broadcom partnership, which had introduced uncertainty around the collaboration. The public demonstration of Jalapeño and confirmation that the chip is physically running in OpenAI's labs helped address that uncertainty. Broadcom and OpenAI said samples are already performing at the target power and performance levels for OpenAI's model, and the companies plan to deploy the chip by year-end.
The market backdrop at the time of the announcement was broadly negative: the NASDAQ was down 2.2% and the S&P 500 was off 1.4% in pre-market trading, reflecting continued pressure on technology and growth stocks. Broadcom's ability to trade higher amid that weakness highlights the company-specific nature of the catalyst.
Major cloud and tech customers have previously sought custom silicon: Meta, Amazon, and Google have contracted Broadcom and Marvell for bespoke chip design services. OpenAI's move to a similar arrangement places it alongside those hyperscale customers and signals another large AI lab turning to custom silicon rather than exclusive reliance on third-party GPUs.
The combination of a concrete product milestone in the OpenAI partnership, strong analyst endorsement, and a stock trading below its 52-week high of $495 gave investors a reason to buy into the recent pullback. Industry observers cited an ongoing trend of AI labs developing in-house chips to lower costs and diversify away from Nvidia's GPU dominance, a structural development that the announcement suggests could leave Broadcom well-positioned within the next phase of AI infrastructure build-out.
Key points
- OpenAI and Broadcom revealed a co-designed inference chip named Jalapeño, which is already running in OpenAI's labs and slated for deployment by year-end.
- Bernstein reiterated an Outperform rating on AVGO with a $550 price target; 44 of 48 analysts rate AVGO a Buy and the consensus price target is above $520.
- The reveal occurred despite weakness in broader markets - NASDAQ down 2.2% and the S&P 500 down 1.4% in pre-market trading - underscoring the company-specific nature of the catalyst.
Risks and uncertainties
- Prior reports of financing friction in the OpenAI-Broadcom partnership had created uncertainty around the collaboration; while the Jalapeño demonstration reduced that ambiguity, earlier financing concerns had been a source of investor caution.
- Broader market weakness in technology and growth stocks, as reflected by pre-market declines in the NASDAQ and S&P 500, presents a headwind for AVGO and peers despite company-specific news.
- The AI infrastructure ecosystem includes dominant processors from Nvidia and Google's tensor processing units; the announcement positions Jalapeño as competitive, but the landscape includes established alternatives.