The Motley Foolยท2025-10-15 08:15Core Insights - Broadcom has entered a multiyear partnership with OpenAI to develop custom AI accelerators, enhancing its position in the AI market [1][4] - Broadcom is the second-largest supplier of AI accelerators, with a significant market share in Ethernet switching and high-end ASICs [1][6] - The partnership with OpenAI is expected to contribute to Broadcom's revenue growth, with projections of $60 billion to $90 billion by fiscal 2027 [2][7] Company Developments - Broadcom is currently building custom AI chips for three hyperscale companies, with an estimated annual revenue of $60 billion to $90 billion by fiscal 2027 [2] - A fourth significant customer has placed orders totaling $10 billion, speculated to be OpenAI [3] - The partnership will involve co-developing 10 gigawatts of custom AI accelerators, with deployment expected from the second half of 2026 through 2029 [4] Market Position and Projections - Broadcom's share of the AI accelerator market is projected to increase from 6% today to 14% by 2030, while Nvidia's share is expected to decrease from over 80% to 67% [6] - Broadcom is on track to earn $13 billion in custom AI accelerator revenue in fiscal 2025, with potential growth of 115% to 163% over the next two years [7] Valuation Concerns - Despite the growth potential, Broadcom's stock is trading at 91 times earnings, indicating a high valuation compared to its forecasted 30% annual earnings growth [8] - The price-to-earnings-to-growth (PEG) ratio exceeds 3, suggesting the stock may be overvalued [8] Competitive Landscape - Nvidia remains the dominant player in the AI accelerator market, with a lower total cost of ownership for its systems [10] - Broadcom collaborates with major companies like Google and Meta Platforms, but Nvidia's established ecosystem and R&D investment present significant competitive barriers [11][12]