Broadcom, Ltd. (Avgo) could benefit from OpenAI diversification far from its exclusive dependence on Nvidia Corp (NVDA). This is evident in the huge current agreement on AI chips with Advanced microdispositive (AMD). It is possible, especially after the OpenAI agreement with Broadcom of September 4. AVGO actions could be an alternative option.
AMD’s actions rose 27% and NVDA dropped slightly, but Avgo remained stable in $ 339.04.
AVGO Actions – Last 3 months – Bars Graph – October 6, 2025
AMD agreed to supply Openai hundreds of thousands of AI chips, enough for tens of billions of dollars for AMD, according to Reuters. OpenAI will also acquire a 10% participation in AMD as a result of the Chips Agreement through Warrants.
So, if OpenAi signed a similar agreement for Broadcom to supply AI chips on the scale that is doing it with AMD, it is possible that Avgo actions can also rise.
After all, Openai is ready to produce his own AI chip in association with Broadcom, as Reuters said in the Financial Times on September 4. So, if that leads to a massive production agreement like the one you have now with AMD, it is expected to see an increase in the expected Broadcom income.
AMD market capitalization is now 351,000 million dollars, but Broadcom is more than four times higher, with 1.6 billion dollars. The point is that Broadcom has the resources to potentially reach an even greater agreement with OpenAI.
Recently I uploaded my target price to $ 418.58 By action in an article by Barchart on September 10, “The huge and unusual option activity in Broadcom underlines the value of Avgo actions.
This was based on the income estimates of analysts and the expected cash flow (FCF), using a 1.85%FCF yield metric.
But, since then, the sales planned for October 2026 have increased to 84,150 million dollars. I also suspect that analysts will produce higher estimates by October 2027 once the next quarter revenues are announced around December 11.
As a result, the target price during the next year could be higher. For example, using a 45 % FCF margin on estimated sales of 90 billion dollars in the next 12 months (NTM) for the fourth quarter:
$ 90 Box x 0.45 = 40.5 billion dollars MNA FCF
The potential of a great production agreement with OpenAI would further raise that estimate.
Using a FCF performance metric of 2.0% (that is, a multiple of 50x FCF), Broadcom could be worth more than 2 billion dollars:
This is 26.5% higher than the current price of shares. In other words, Avgo shares potentially are worth 26.5% more:
$ 338.17 x 1,265 = $ 427.78 By action
In addition, if an OpenAI production agreement is announced in the next 12 months, such as the agreement with AMD, all bets would be canceled. The market is likely to give AVGO shares a much higher assessment:
$ 40.5 billion / 0.018 (that is, 55.5x) = 2.25 billion dollarsO +40.2% up
In that case, Avgo would be worth it. $ 474 By action.
The conclusion is that the AVGO assessment could benefit from this agreement with AMD SI OpenAI continues to close agreements with other chips manufacturers, including Broadcom.
I talked about short sales options out of money (OTM) in my Barchart article on September 5. That worked well, since I recommended to sell the exercise price of $ 285.00 that beat October 3. Avgo closed at $ 338.37 and the investor kept the premium of $ 6.73 for a yield of 2.36% to one month.
Today, the October 31 expiration period shows that the sales option with exercise price of $ 320, 5.4% below the current or OTM negotiation price, has a mid -point premium of $ 8.45.
That provides the seller in short of immediate performance of 2.64% (that is, $ 8.45/$ 320.00).
Avgo expires on October 31 – Barchart – As of October 6, 2025
This means that an investor can obtain a good yield and also set a potentially lower purchase price, if Avgo falls to $ 320 in the next 25 days.
However, an inverter with a cash guarantee in this play will not obtain any advantage over Avgo shares. They can only obtain a short -term performance.
One way to avoid this is also buying in the money for longer term. For example, the purchase option of $ 320 that expires in more than 6 months (April 17, 2026) has a premium of $ 58.30.
The calls AVGO win on April 17, 2026 – Bars Graph – October 6, 2025
That means that the equilibrium point is $ 378.30, or $ 39.26 (+11.6%) above the current price. The extrinsic is $ 39.26 more than the current price, which implies that Avgo has to rise 11.6% in six months for these calls to have intrinsic value.
But, if the investor can continually sell OTM sales options for $ 8.45 for 6 months, the investor could potentially accumulate more than that extrinsic value (that is, $ 8.45 x 6 = $ 50.7).
Therefore, this could be a good way to take advantage of AVGO over the next 6 months.
For example, if Avgo rises to $ 427.78, my higher objective price, the potential performance is as follows:
Call exercise price of $ 427.78- $ 320.00 = intrinsic value of $ 107.78
$ 107.78 / $ 58.30 = 1,8487-1 = +84.87%
In addition, the $ 50.70 accumulated in possible short -term income would raise total yield to 172%.
The conclusion is that AVGO OTM sales options and ITM purchase options seem attractive here for an investor that assumes long -term risks.
On the date of publication, Mark R. Hake, CFA did not have (neither directly or indirectly) positions in any of the values ​​mentioned in this article. All information and data in this article have only informative purposes. This article was originally published at Barchart.com
