Broadcom Inc. (NASDAQ:AVGO) shares edged higher Wednesday, adding $1.92 or 0.51% to close at $382.07, after the company and OpenAI unveiled a custom AI inference chip called Jalapeño. The stock touched a session high of $388.74 before pulling back, with volume of 29.79 million shares—114% of the 65-day average, according to MarketWatch.
Jalapeño Chip Details
OpenAI and Broadcom announced Jalapeño, OpenAI's first custom inference processor designed for large language model (LLM) workloads. Engineering samples are already running machine-learning tasks in the lab, including GPT-5.3-Codex-Spark, achieving production-level frequency and power metrics. Early testing suggests performance per watt exceeds current state-of-the-art solutions.
Broadcom CEO Hock Tan stated the chip is slated for deployment by the end of 2026, targeting gigawatt-scale data centers for Microsoft Corp. (NASDAQ:MSFT) and other partners. OpenAI hardware chief Richard Ho described Jalapeño as 'designed from the ground up for LLM inference,' while OpenAI President Greg Brockman emphasized the company's goal to make compute 'more abundant.'
Q3 Guidance and AI Revenue Mix
Broadcom's third-quarter outlook projects AI semiconductor revenue of $16.0 billion, accounting for approximately 54% of total expected revenue of $29.4 billion. This marks an increase from 49% in Q2, when AI chip sales were $10.8 billion on total revenue of $22.187 billion. The implied sequential jump of $5.2 billion in AI semiconductor revenue is about 72% of Broadcom's Q2 infrastructure software revenue of $7.178 billion.
This data underscores that AI is not just a growth driver but the primary determinant of Broadcom's valuation multiple. The shift in revenue mix toward custom AI chips is a double-edged sword: while it fuels top-line growth, it also pressures profit margins.
Margin Concerns
CEO Hock Tan warned that profit margins on custom AI chips trail those of other products, such as networking switches. The lower margins stem from the reliance on high-bandwidth memory supplied by SK Hynix Inc. (KRX:000660) and Samsung Electronics Co. (KRX:005930). Tan's comments highlight that margin, not demand, is the next key test for Broadcom investors.
Despite the margin headwinds, the broader market context showed resilience. The Nasdaq Composite fell 0.43% and the S&P 500 slipped 0.10%, while the Dow Jones Industrial Average gained 0.35%. Michael Monaghan, partner and portfolio manager at Founder ETFs, noted that investors 'like the recipients of the spend' in AI but are 'punishing those doing the spending.'
Analyst Sentiment
Wall Street remains bullish on Broadcom. According to Google Finance, 24 analysts rate the stock a buy and four rate it a hold, with an average 12-month price target of $513.58—approximately 34.4% above current levels. William Blair analyst Sebastien Naji reiterated a buy rating on June 24, and J.P. Morgan's Harlan Sur maintained a $580 price target on June 17.
As Broadcom navigates the balance between AI-driven growth and margin compression, investors will closely watch the company's ability to scale its custom chip business while managing cost structures. The success of the Jalapeño deployment and broader AI chip strategy will be pivotal in determining whether the stock can sustain its upward trajectory.
