Semiconductor Showdown: AMD vs. Broadcom
The past year has been a wild ride for semiconductor companies, with the PHLX Semiconductor Sector index surging 21%. However, not all chipmakers have shared in the spoils. Advanced Micro Devices (NASDAQ: AMD) has struggled, losing 14% of its value, while Broadcom (NASDAQ: AVGO) has soared 115%. Let’s dive into the prospects of these two industry giants and determine which one is the better buy.
AMD’s Turnaround
Despite a tough 2024, AMD is poised for a comeback in 2025. The company’s third-quarter results showed a 18% year-over-year revenue increase to $6.8 billion, accompanied by a 31% spike in earnings per share to $0.92. Analysts expect AMD’s revenue to jump 27% to $32.5 billion in 2025, with earnings per share soaring 54% to $5.13.
Data Center and AI Growth
AMD’s data center business has gained significant traction, with the company expecting to sell over $5 billion worth of graphics processing units (GPUs) in 2024. This growth is expected to continue in 2025, driven by an improved supply chain and increasing demand for AI-capable GPUs. Additionally, AMD’s Ryzen PC processors are set to power a tripling of AI-enabled products in 2025, which could help the company gain a larger share of the client CPU market.
Broadcom’s AI Dominance
Broadcom, on the other hand, is already a major player in the AI chip market, generating $12.2 billion in revenue last fiscal year from sales of its custom AI processors and networking chips. The company sees its addressable market in this space increasing to $60 billion to $90 billion by fiscal 2027. With a 55% to 60% share of the custom processor market, Broadcom is well-positioned to capitalize on this growth opportunity.
Growth Prospects
Both AMD and Broadcom are expected to deliver robust growth in 2025 and beyond. However, AMD is trading at a more attractive valuation than Broadcom, with faster growth prospects in the new year. While Broadcom’s dominant position in the custom AI processor market justifies its rich valuation, investors looking for a growth stock at a reasonable price may prefer AMD.
The Verdict
In conclusion, both AMD and Broadcom are compelling semiconductor stocks, but AMD’s growth potential and attractive valuation make it the better buy for investors seeking a growth stock at a reasonable price.
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