Broadcom Rallies on AI Chip Deal With OpenAI, Boosting Semiconductor ETFs

Broadcom Earnings Spark Rally

Shares of Broadcom (AVGO) surged on Friday after the company delivered stronger-than-expected quarterly results and confirmed a major new customer for its artificial intelligence chips. The stock climbed as much as 16.4%, helping lift semiconductor ETFs across the board.

The chipmaker — now the world’s second-largest by market value after Nvidia, at roughly $1.6 trillion — posted fiscal Q3 earnings of $1.69 per share, above analyst estimates of $1.67. Revenue came in at $16 billion, beating forecasts of $15.8 billion and marking 22% year-over-year growth. Broadcom guided to $17.4 billion for Q4, implying growth close to 24%.

Expanding AI Business

Investor enthusiasm centered on Broadcom’s custom AI accelerators, known as XPUs. The company works with technology leaders including Alphabet, Meta, and ByteDance, designing chips that compete with Nvidia’s GPUs.

AI-related revenue has been accelerating rapidly:

- Q2: $4.4 billion, up 46% from a year earlier

- Q3: $5.2 billion, up 63%

- Q4 forecast: $6.2 billion

Broadcom also disclosed that it has signed a fourth major XPU customer, securing more than $10 billion in orders. According to the Financial Times, the buyer is OpenAI, the developer of ChatGPT, which intends to use Broadcom’s chips to run its services. The announcement fueled the stock’s sharp rally.

Nvidia Slips on Competitive Concerns

While Broadcom soared, Nvidia fell as much as 4.4% on the same day. The decline reflected investor concern that OpenAI’s move into custom hardware could reduce future GPU demand.

Even so, most analysts see the market as large enough for both approaches:

- Nvidia’s GPUs remain the standard for flexibility and ecosystem support.

- Custom chips like Broadcom’s XPUs offer specialization and potential cost savings at scale.

Major cloud firms such as Alphabet, Meta, and Amazon are pursuing both strategies simultaneously, underscoring the dual-track nature of AI infrastructure.

ETF Reactions: Semis and Tech Funds Move

Broadcom’s surge and Nvidia’s decline had immediate effects on semiconductor and tech ETFs:

- iShares Semiconductor ETF (SOXX): Broadcom and Nvidia each hold 8.5% weights, trailing AMD’s 9.8%.

- VanEck Semiconductor ETF (SMH): Nvidia is the largest component at 22%, while Broadcom makes up about 10%.

- Invesco QQQ Trust (QQQ): Broadcom is a top-five holding at 5.4%; Nvidia leads at 9.5%.

- Vanguard S&P 500 ETF (VOO): Broadcom ranks seventh at 2.6%, while Nvidia is the largest at 8.1%.

The day’s moves highlighted how heavily these ETFs are influenced by just a few semiconductor giants.

Key Takeaways for Investors

- Broadcom’s OpenAI partnership marks a significant expansion in the AI chip race, strengthening its position against Nvidia.

- ETF investors gain exposure to this rivalry automatically, with both names occupying top spots in major semiconductor and tech funds.

- Concentration risk remains high: swings in either Broadcom or Nvidia can drive overall ETF performance, underscoring how central these companies have become to market trends.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Please consult a licensed financial advisor before investing.