The AI Chip Showdown: Nvidia vs. Broadcom
As we head into 2025, the battle for artificial intelligence (AI) infrastructure supremacy is heating up. Nvidia, the reigning champion, is facing a strong challenge from Broadcom. Both semiconductor stocks have had an impressive run in 2024, with Nvidia’s stock soaring over 170% and Broadcom’s up around 107%. But which stock looks like the better buy heading into the new year?
Nvidia’s Dominance
Nvidia has been the biggest winner in the AI boom, thanks to its powerful graphics processing units (GPUs) and wide moat due to its CUDA software platform. The company’s chips have become the backbone of AI infrastructure, with a 90% market share in GPUs. As AI models require exponentially more computing power, Nvidia’s future growth prospects look promising. In fact, recent iterations of Alphabet’s Llama AI model and xAI’s Grok model are being trained using up to 10 times as many GPUs as their predecessors.
Broadcom’s Custom Approach
Meanwhile, Broadcom is making inroads by helping customers develop custom AI chips. Its application-specific integrated circuits (ASICs) are designed specifically for a customer’s precise needs, offering improved performance and more efficient power consumption. Alphabet was the first company to use Broadcom’s technology to develop its own custom AI chip, and the company has since gained four more custom AI chip customers, including Meta Platforms, TikTok owner ByteDance, OpenAI, and Apple.
A Tale of Two Stocks
While Nvidia is dominating the AI chip space, Broadcom’s custom approach is gaining traction. Nvidia’s revenue surged 135% to $91.2 billion in the first nine months of its fiscal 2025, while Broadcom’s organic revenue grew 11% last quarter. Analysts are projecting Nvidia to grow its revenue by just over 50% next year, while Broadcom’s revenue growth is expected to be more modest.
Valuation and Growth
Nvidia currently trades at a cheaper valuation than Broadcom, with a forward price-to-earnings (P/E) ratio of about 30 compared to over 33 for Broadcom. Meanwhile, Nvidia is growing its revenue much faster, which is expected to continue in 2025. Nvidia also holds about $30 billion in net cash, while Broadcom has $48.3 billion in net debt.
The Verdict
While Broadcom’s gains have powered its stock price, Nvidia is now the cheaper stock and is still expected to grow its revenue much more quickly in the near term. Both stocks have the potential to be winners in 2025, but I prefer Nvidia at this point given its current superior growth and cheaper valuation. However, it’s clear that Broadcom’s custom approach is gaining traction, and companies want an option other than Nvidia to ensure it doesn’t become too powerful.
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