The artificial intelligence (AI) space is home to many companies that are rapidly increasing revenue and profits and delivering significant value to shareholders. Two companies that are carving a niche in the AI market and achieving impressive results are Broadcom. (AVGO 4.79%) and Nvidia (NVDA 1.68%).
Both have their advantages, but if you had to choose one, which AI stock is better? Let’s take a closer look.
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For Broadcom
Broadcom makes application-specific integrated circuits (ASICs) used in data centers and helps some of the largest technology companies enable generative AI capabilities. CEO Hock Tan recently said the company is developing AI chips with three “very large” customers, with each customer planning to deploy 1 million chips by 2027. Ta.
Also, a recent report claims that OpenAI, the creator of ChatGPT, is working with Broadcom to help develop its own AI chip.
All of this new demand from big tech companies comes on the heels of the company’s already impressive AI growth. Broadcom’s AI revenue will jump 220% to $12.2 billion in 2024, with potential for further growth. Tan said during the fourth quarter earnings call that the company believes the total market opportunity for Broadcom’s AI chips and AI networking infrastructure could be $60 billion to $90 billion in fiscal 2027 alone. He said there was.
It may sound like an exaggerated estimate from a business executive, but AI spending is currently skyrocketing, with Goldman Sachs predicting that technology companies will spend $1 trillion over the next few years building out AI infrastructure. I am estimating.
For Nvidia
Nvidia is one of the most popular AI stocks right now due to its leadership in semiconductors. The company’s graphics processing units (GPUs) have been used in data centers for years, and demand for the chips grew even more as tech giants began competing for dominance in generative AI.
An estimated 70% to 95% of AI data centers use the company’s GPUs, and this lead makes it extremely difficult for rivals to catch up.
Management is working hard to maintain that lead by releasing new AI hardware like the Blackwell chip. Chief Financial Officer Colette Kress said “all our customers are competing to be the first” to deploy new chips in their data centers.
For anyone who doubts that Kress’s comments are just an ad for her product, a look at the company’s third-quarter financial results (ending October 27) prove that her words are more than just talk. Sales increased 94% to $35.1 billion, and adjusted profit increased 103% year over year to $0.81. These results were driven by a 112% increase in data center revenue to $30.8 billion.
Like Broadcom, Nvidia is also benefiting from increased investment in AI infrastructure by companies. And CEO Jensen Huang estimates these investments could reach $2 trillion over the next five years.
Verdict: NVIDIA is the better AI stock
In many cases, when you compare two companies, you can quickly tell which is the better purchase. In this case, I think both stocks are good long-term AI investments. Broadcom and Nvidia are already tapping the demand, and with increased spending on artificial intelligence, their lead in this space should continue to pay off for years to come.
But if I had to choose just one company to invest in right now, I would choose Nvidia. The company has long been a leader in AI chips, but its forward price/earnings (P/E) ratio of 30.3 is slightly lower than Broadcom’s forward P/E (35.3).
Despite the growing demand for AI, there is still some volatility in both of these stocks, especially as some investors inevitably cash out some of their gains over the past few years. It is worth noting that there is.
Chris Neiger has no position in any stocks mentioned. The Motley Fool has a position in and recommends Goldman Sachs Group, Inc. and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
