By Krystal Hu, Fanny Potkin and Stephen Nellis

(Reuters) - OpenAI is working with Broadcom and TSMC to build its first in-house chip designed to support its artificial intelligence systems, while adding AMD chips alongside Nvidia chips to meet its surging infrastructure demands, sources told Reuters.

OpenAI, the fast-growing company behind ChatGPT, has examined a range of options to diversify chip supply and reduce costs. OpenAI considered building everything in-house and raising capital for an expensive plan to build a network of factories known as "foundries" for chip manufacturing.

The company has dropped the ambitious foundry plans for now due to the costs and time needed to build a network, and plans instead to focus on in-house chip design efforts, according to sources, who requested anonymity as they were not authorized to discuss private matters.

The company's strategy, detailed here for the first time, highlights how the Silicon Valley startup is leveraging industry partnerships and a mix of internal and external approaches to secure chip supply and manage costs like larger rivals Amazon, Meta, Google and Microsoft. As one of the largest buyers of chips, OpenAI's decision to source from a diverse array of chipmakers while developing its customized chip could have broader tech sector implications.

Broadcom stock jumped following the report, finishing Tuesday's trading up over 4.5%. AMD shares also extended their gains from the morning session, ending the day up 3.7%.

OpenAI, AMD and TSMC declined to comment. Broadcom did not immediately respond to a request for comment.

OpenAI, which helped commercialize generative AI that produces human-like responses to queries, relies on substantial computing power to train and run its systems. As one of the largest purchasers of Nvidia’s graphics processing units (GPUs), OpenAI uses AI chips both to train models where the AI learns from data and for inference, applying AI to make predictions or decisions based on new information.

Reuters previously reported on OpenAI's chip design endeavors. The Information reported on talks with Broadcom and others.

OpenAI has been working for months with Broadcom to build its first AI chip focusing on inference, according to sources. Demand right now is greater for training chips, but analysts have predicted the need for inference chips could surpass them as more AI applications are deployed.

Broadcom helps companies including Alphabet unit Google fine-tune chip designs for manufacturing and also supplies parts of the design that help move information on and off the chips quickly. This is important in AI systems where tens of thousands of chips are strung together to work in tandem.