When it comes to artificial intelligence (AI) infrastructure in 2024, Nvidia (NVDA -1.14%) reigned supreme. However, Broadcom (AVGO -6.91%) In 2025, the company plans to take on the challenge of becoming a chip maker.
Both stocks are doing well in 2024, with Nvidia’s stock price up more than 170% since the beginning of the year and Broadcom’s up about 107% as of this writing. Let’s take a look at which semiconductor stocks are likely to be better buys heading into 2025.
Growth of AI infrastructure
Since the AI boom began, Nvidia has been the biggest winner. As a maker of graphics processing units (GPUs), its chips have become the backbone of AI infrastructure. Training large language models (LLMs) and performing AI inference requires a lot of computing power, and GPUs are the best chips for these tasks because they can perform many calculations at the same time, so-called parallel processing. It has been proven that.
Nvidia, on the other hand, has become the market leader in GPUs thanks to its CUDA software platform. The company initially developed the free software to help developers program the chips for tasks other than speeding up graphics rendering, such as in video games, in order to sell more chips. As a result, CUDA became the program for developers to learn how to train GPUs, which helped the company build the large moat it sees today. As a result, it now has about 90% market share in GPUs.
The combination of powerful GPUs and the wide moat of CUDA has helped the company achieve astronomical growth as major technology companies race to develop more powerful AI models. Through the first nine months of fiscal year 2025, which ends in January 2025, Nvidia’s revenue increased 135% to $91.2 billion, compared with a 94% increase in revenue to $35.1 billion in the previous quarter.
Nvidia’s future growth prospects also look promising, as AI models require exponentially more computing power as they become more sophisticated. In fact, recent iterations of Alphabet’s Llama AI model and xAI’s Grok model are trained using up to 10 times more GPUs than their predecessors. At the same time, Nvidia’s hyperscale customers (customers with huge data centers) see AI as a generational opportunity and have indicated plans to increase spending on AI infrastructure next year. Meanwhile, analysts predict that the company’s sales will increase by more than 50% next year.
Image source: Getty Images.
While Nvidia dominates the AI chip space, Broadcom is making inroads by helping customers develop custom AI chips. Its application-specific integrated circuits (ASICs) are specifically designed to meet customers’ exact needs and help improve performance and streamline power consumption.
Alphabet is the first company to leverage Broadcom’s technology and expertise to develop its own custom AI chip. The result is a tensor processing unit (TPU) called Trillium that is specifically designed to work within Google’s TensorFlow, a software library for AI and machine learning. According to Alphabet, these TPUs have several features to differentiate them from mass-market GPUs, including matrix multiplication units (MXUs) and a unique interconnect topology, allowing for faster AI training and inference. It is said that it is ideal for
Despite some reports that Alphabet was planning to go it alone without Broadcom’s support, Broadcom has been awarded the contract to design Alphabet’s next-generation TPU. Meanwhile, the company has acquired four more customers for its custom AI chips. Meta Platforms and TikTok owner ByteDance are widely believed to be existing customers of the company, while OpenAI and more recently Apple are believed to have recently acquired customers.
Broadcom said in its latest earnings report that its three largest custom AI chip customers have an addressable market of $60 billion to $90 billion in fiscal year 2027 alone, and will sell 1 million custom AI chips by 2027. He said he plans to introduce the The company said two new AI chip customers could add to that total. For reference, it took Alphabet 15 months to design and deploy custom TPUs within their data centers.
The AI opportunity is great for Broadcom, but there’s a big difference between addressable market and expected revenue. The company is involved in a number of semiconductor and software businesses outside of AI, but these are not growing as quickly. Excluding the VMware acquisition, the company’s organic revenue growth last quarter was just 11%, and analysts now expect the company’s revenue to grow by 18% for the current fiscal year, which ends October 31, 2025, and next year. is expected to increase by 14%.
Rating and verdict
Nvidia currently trades at a cheaper valuation than Broadcom, trading at a forward price-to-earnings ratio of about 30 times, compared to Broadcom’s more than 33 times. Nvidia, on the other hand, is currently growing its revenue faster, and this growth is expected to continue through 2025. Additionally, Nvidia has net cash of approximately $30 billion, while Broadcom has net debt of $48.3 billion.
NVDA PE Ratio (Forward 1y) Data by YCharts.
Broadcom generated a lot of hype with its comments about the AI-enabled market, which drove its stock price higher in December. Meanwhile, Nvidia stock ended the year struggling. But while Broadcom has gained traction, Nvidia is now a cheap stock, yet its earnings are expected to grow even faster in the near term.
Broadcom management is certainly putting questions in investors’ minds about who will be the biggest AI chip winners in the coming years. But Broadcom’s gains don’t necessarily come at Nvidia’s expense. GPUs are more versatile than custom chips and are still considered the standard. However, companies are also looking for alternatives to Nvidia to keep it from becoming too powerful.
I think both stocks have the potential to be winners in 2025, but I prefer Nvidia right now given its superior growth and cheap valuation.
Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Geoffrey Seiler is with Alphabet. The Motley Fool has positions in and recommends Alphabet, Apple, Meta Platforms, and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
