How Broadcom’s OpenAI deal fits into data center boom; what it means for AI trade
Kicking off the week with a bang, OpenAI announced another massive data center buildout partnership. This time with Club name and custom semiconductor industry leader Broadcom. Shares of Broadcom soared as much as 10.7% on Monday after the two companies revealed that they have been working for 18 months on custom-designed chips optimized for inference, the process of running AI models on a day-to-day basis. Deployment of 10 gigawatts of the co-designed chips, which will be networked through Broadcom’s Ethernet stack, is set to start late next year. Broadcom stock has gained roughly 54% year to date. The news is the latest in a series of monster deals over the past few weeks. On Sept. 22, OpenAI struck a deal for 10GW of Nvidia-based data centers . Two weeks later, OpenAI made 6GW deal with Nvidia competitor Advanced Micro Devices . Both of those deals, along with Monday’s Broadcom announcement, follow the massive $500 billion Stargate Project announced by OpenAI, Softbank, and Oracle . Stargate is targeting 10GW of capacity but may exceed that initial goal over time as the initiative expands internationally, starting with Stargate UAE . Adding it all up, Open AI has announced roughly 36GW of data center capacity since the beginning of the year, with 26GW worth of deals coming in the past three weeks alone. To put that into perspective, the Hoover Dam’s power-generating capacity is about 2GW, which is enough to power nearly 1.8 million homes for an entire year. So, what we’re talking about here is the equivalent of about 18 Hoover Dams or enough energy to power more than 31 million homes for an entire year. Though the build-out of all these projects will take several years, OpenAI co-founder and president Greg Brockman, speaking with Jim Cramer on CNBC shortly after the news was announced, made clear that these projects, which combined represent the largest industrial undertaking in history, are needed to get ahead of a clear “avalanche” of demand. Asked if he meant that OpenAI was hoping to see immense demand, Brockman stressed it is not about hope but rather that the company is “currently being swept along by the avalanche.” As an example, Brockman said that while ChatGPT was the fastest-growing consumer app in history, the company’s new video generation app, Sora, is now growing even faster. ChatGPT, which was launched by Microsoft -backed OpenAI in late 2022, quickly went viral. The chatbot brought generative AI to the masses and launched the current boom in developing and deploying the technology. According to Broadcom’s release , “By designing its own chips and systems, OpenAI can embed what it’s learned from developing frontier [or cutting edge] models and products directly into the hardware, unlocking new levels of capability and intelligence. Brockman said on CNBC that it will also reduce the cost of running AI models. OpenAI’s Brockman appeared on CNBC alongside Charlie Kawwas, president of Broadcom’s semiconductor solutions group. CNBC’s David Faber asked Kawwas during Monday’s interview if OpenAI was the fourth new major custom-chip partner that Broadcom disclosed but didn’t name during last month’s post-earnings conference call. Kawwas said , “I would love to take a $10 billion PO [purchase order] from my good friend Greg [Brockman]; he has not given me that PO yet, so I hope that answers the question.” So, this means that there is another major buyer out there looking to stand up significant data center computing power. While we can’t say for sure who it is, analyst Ben Reitzes of Melius Research speculated last week that the fourth Broadcom customer may also be Amazon -backed Anthropic. Jim will ask Broadcom CEO Hock Tan, among other things, during Monday’s interview for “Mad Money.” The Broadcom-OpenAI news is just another example of how early we still are in the AI trade. While we are certainly seeing areas of froth and bubble-like activity in some parts of the market – Jim cautioned against some of those names in his Sunday column – we don’t think that is the case for names like Broadcom and Nvidia, nor is it the case for the highly profitable megacaps driving much of the money behind the trade. Even at these levels, we think names like Broadcom and Nvidia still trade at reasonable levels given their growth outlooks. In terms of Nvidia’s deal with OpenAI, Nvidia CEO Jensen Huang, at the time, said this one deal was equal to the entirety of the company’s 2025 revenue. Jensen told Jim last week at the Club’s October Monthly Meeting that “partnership with OpenAI is really incremental to all the work that we have done with Azure, OCI, and CoreWeave.” Azure is Microsoft’s cloud. OCI stands for Oracle Cloud Infrastructure. CoreWeave, another Nvidia-backed company, rents out computing power run on Nvidia chips. Lastly, we would be remiss if we didn’t call out that with great power demand comes the need for great companies that enable power generation. Jensen told Jim last week that without meeting America’s increasing energy demand, driven in large part by AI, there is no industrial growth, without industrial growth, there’s no stock price growth, there’s no economic growth, there’s no national security.” For the Club, that means GE Vernova , up more than 7% on Monday, and Eaton , up roughly 2.5%. GE Vernova makes natural gas turbines that can and are being hooked up to data centers to make electricity when the power grid is overtaxed. The company also builds small modular nuclear reactors, though meaningful additional nuclear power is still a few years away. Eaton, on the other hand, makes power management systems and components that enable data centers to run more efficiently, with greater uptimes and scalability. Eaton’s cooling and airflow management solutions are also at the heart of maintaining environmental conditions in the data center. (Jim Cramer’s Charitable Trust is long AVGO, NVDA, MSFT, AMZN. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. 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