Why Broadcom Stock Is Gaining Today

The Motley FoolOct 30, 2024 5:52 AM

Broadcom (NASDAQ: AVGO) stock is jumping in Tuesday's trading following news of a new artificial intelligence (AI) chip project. The company's share price was up 3.8% as of 3 p.m. ET.

Reuters published a report today stating that OpenAI is working on a new in-house AI chip. Broadcom is assisting with the design of the chip, and Taiwan Semiconductor Manufacturing is also involved in the process.

Broadcom's collaboration with OpenAI is intriguing

OpenAI is at the forefront of the generative AI trend. The company is responsible for services including ChatGPT, Dall-E, and Sora, and its technologies have relied on hardware from Nvidia and other advanced semiconductor providers.

OpenAI is aiming to dramatically expand its capabilities and operations, so it's looking to reduce its dependence on third-party hardware. That could create some opportunities for Broadcom in the near term.

Broadcom appears to be helping OpenAI with designs for AI inference

Based on the report from Reuters, the chip that OpenAI is designing with Broadcom's help probably isn't being positioned to replace Nvidia's advanced graphics processing units (GPUs). Nvidia's GPUs have been the preferred hardware for the training of artificial intelligence models. Meanwhile, the new chip from OpenAI is being tailored for less computationally intensive AI inference applications.

While it's not clear how much of a sales windfall Broadcom might record from helping OpenAI develop its first in-house AI chip, it's a bullish sign for the chip company that it was selected by the AI-software leader for the project. Broadcom stock has rallied roughly 60% year to date, and AI-related business tailwinds and excitement surrounding future opportunities in the space have played a big role in the company's valuation gains.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.

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