Broadcom shares fell about 4% on Thursday afternoon after reports emerged that the semiconductor maker's planned financing for the first stage of chip production for OpenAI may be in jeopardy. The planned initial phase would require roughly 1.3 gigawatts of data center capacity and carry an estimated price tag of about $18 billion, according to reporting that cited an internal memo and two people involved in the discussions.
Sources familiar with the talks say negotiations have hit a snag because Broadcom has indicated it will only provide the financing for the first phase if Microsoft agrees to purchase roughly 40% of the chips. That condition was described in a memo circulated by an OpenAI executive to colleagues last month. Under the arrangement being discussed, Microsoft would install the purchased chips in its own data centers and then lease that capacity back to OpenAI.
Those involved in negotiations say a purchase commitment from Microsoft would give Broadcom greater assurance that it could recover the funds it would front for production. Conversely, if Microsoft elects not to acquire the roughly 40% stake in the chips, the financing parameters for the project would need to be revisited, the memo indicated.
Securing external financing for the chip program is particularly important for OpenAI given the scale of the company’s projected operational spending. The ChatGPT maker has forecast that its operations will consume more than $200 billion through 2029. Deploying proprietary chips is a central element of OpenAI’s strategy to reduce server expenses and to improve gross profit margins.
The negotiations involve several interlocking considerations: production scale and cost, data center capacity allocation, and how purchase or lease commitments from a hyperscaler partner would affect a third-party vendor’s confidence in financing such an investment. The current reporting describes the condition Broadcom has placed on its willingness to finance the first phase, and identifies Microsoft’s potential purchase decision as a pivotal variable in whether those financing terms hold.
Note: Reporting cited an internal memo and people involved in the talks for the details about the proposed financing arrangement and the condition tied to a Microsoft purchase commitment.