OpenAI will need more computing power to continue supporting its AI offerings as they continue to grow.

This is why recently, the company has been in somewhat of a dealmaking spree, inking various agreements with behemoths like Oracle (ORCL) and Nvidia (NVDA), and emerging players like AMD (AMD).

Combined, these deals provide OpenAI with nearly 20 gigawatts of computational power. Despite this being the case, it seems the company isn’t done making deals.

Earlier this week, the company announced collaborating with chipsmaker Broadcom (AVGO) in the design, scale-in, scale-out, and deployment of custom AI accelerators over the next four years. If this deal pans out, Broadcom could gain as much as $100 billion in additional revenue.

However, there’s more to this story, as OpenAI’s dealmaking also presents investors with a playbook in navigating the AI boom.

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OpenAI has been on a dealmaking spree as of late as it looks to build out the infrastructure necessary to support its massive computational needs.

Last month, it inked deals with cloud computing giant Oracle (ORCL) for $300 billion over five years and Nvidia (NVDA) to build and deploy at least 10 gigawatts of data centers powered by Nvidia hardware and software.

OpenAI also struck a multi-billion dollar partnership with Nvidia rival AMD (AMD) to purchase and deploy 6 gigawatts’ worth of AMD GPUs over the next few years.

Combined, these deals provide the AI startup with access to nearly 20 gigawatts of computing power needed to continue powering artificial intelligence (“AI”) offerings such as ChatGPT—which recently reached 800 million weekly users—and video generation tool Sora, which is also seeing rapid growth.

Beyond the added computational muscle, these deals have also benefited OpenAI’s partners. AMD, for example, saw its stock price rise over 20% upon announcing its deal with OpenAI.

However, it seems OpenAI isn’t done making deals yet.

Earlier this week, the company announced that it would be collaborating with chipsmaker Broadcom (AVGO).

Broadcom, specializes in the design of semiconductors and infrastructure software solutions. In recent years, it has quietly built itself up as a player in the AI boom as it has helped companies by designing custom chips for AI-related computational workloads.

Custom AI chips are becoming increasingly popular among Big Tech firms that are looking for alternatives to Nvidia’s popular yet expensive hardware.

In fact, Broadcom began working with OpenAI more than a year ago to create custom chips. This new deal represents a broadening of that partnership.

Under the agreement, OpenAI will acquire 10 gigawatts’ worth of custom AI accelerators which it will design itself and will co-develop with Broadcom. These chips will then be deployed in data centers OpenAI owns as well as those owned by third parties. Moreover, Broadcom will provide server racks powered by its own networking tech.

While both firms didn’t disclose the financial cost of this collaboration, it’s speculated to be worth billions of dollars. Shortly after the deal’s announcement, Broadcom’s shares jumped nearly 10%.

This deal will give OpenAI access to 26 gigawatts of computing power. And more importantly, this will allow the company to design and manufacture chips specifically tailored to its needs at scale, helping it reduce reliance on Nvidia’s hardware and bring down costs long-term.

For Broadcom, this partnership deepens its access to the booming AI chips market. While the company has provided custom chips to other firms and boosted revenues accordingly, landing this massive deal will drive further revenue growth, which is forecasted to provide upwards of $100 billion in additional revenue in the next four years.

All in all, if this deal pans out, it will yield positive results to both companies.

More importantly, OpenAI’s dealmaking presents a compelling playbook for investors navigating the AI boom. Those who want to benefit from this trend should look at companies that support AI’s biggest players because their wins lead to outsized gain for their partners.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research