Nvidia vs Broadcom: Who Leads in AI Stocks?

Published Date::22/09/2024

Discover which semiconductor giant is better positioned to capitalize on the growing AI market.

The semiconductor chip makers are seeing strong sales, but some factors make one of them the better AI buy. Over the past year, businesses raced to implement artificial intelligence (AI) technologies, and that boosted sales for semiconductor chip makers Nvidia and Broadcom.

Both sell components required to implement AI in data centers designed for cloud computing, the ideal place for AI to satisfy its need for massive computing power. As a result, Broadcom and Nvidia are positioned to benefit for years as the AI industry expands from 2023's global market size of $136 billion to an estimated $827 billion by 2030.

Broadcom tackles the AI market with an array of products servicing many tech industries, including data centers, wireless networks, and industrial applications. The company's AI strategy involves a combination of hardware and software to help customers meet their needs for AI infrastructure.

On the hardware side, Broadcom's products include AI accelerators, an essential component to speed up AI computer processing. Its business building custom AI accelerators grew year over year by more than 3 times in its fiscal third quarter, ended Aug. 4.

Thanks to demand for its AI-related products, the company's semiconductor division saw fiscal Q3 sales grow to $7.3 billion, up from $6.9 billion in the previous year. On the software side, Broadcom acquired VMware toward the end of 2023, which is why its software division's Q3 revenue zoomed up to $5.8 billion from $1.9 billion in the prior year.

Nvidia's AI success centers around its graphics processing unit (GPU), which is the heart of an AI system's ability to execute complex computations. The company also provides a comprehensive suite of software and other services, such as a robotics platform, to help businesses harness AI.

The semiconductor giant pioneered the GPU in 1999, steadily improving it over the years. Now, Nvidia's chips are the preferred choice for the AI computing industry. The company continues to evolve its processors, with its new Blackwell GPUs ramping up production this year.

According to Nvidia, Blackwell is the world's largest, most powerful GPU, housing over 200 billion transistors. Its GPU leadership in AI enabled Nvidia to hit a record $30 billion in revenue during its fiscal second quarter, ended July 28, a 122% increase from a year ago.

Nvidia's AI strategy includes extending its GPU strength into various industries, such as automotive, to enable self-driving vehicles. In addition, its CEO, Jensen Huang, believes the cloud computing market, worth nearly $600 billion in 2023, will transition existing infrastructure to support AI systems.

Deciding between Broadcom and Nvidia stocks, it's clear that both companies should continue to see rising sales. However, Nvidia experienced the largest revenue growth this past year as AI took off, illustrating the customer demand for its products.

Another factor to consider with each stock is their price-to-earnings ratio (P/E ratio), a widely used metric to assess valuation. Broadcom's P/E multiple of 141 is far higher than the 54 for Nvidia shares, indicating Nvidia is the better value.

Currently, both Broadcom and Nvidia shares are below their 52-week highs. But Nvidia's market leadership in AI chips, strong financials, and superior valuation compared to Broadcom make it the better long-term investment between these two semiconductor titans.

  Information 

Broadcom Inc. is a leading designer, developer, and global supplier of a broad range of semiconductor and infrastructure software solutions. Broadcom's product portfolio serves the data center, networking, software, broadband, wireless, and storage and industrial markets.

Nvidia Corporation is a multinational technology company incorporated in Delaware and based in Santa Clara, California. It is a leading designer and manufacturer of graphics processing units (GPUs) and high-performance computing hardware.

Broadcom Inc. is a global technology leader that designs, develops and supplies a broad range of semiconductor and infrastructure software solutions. Broadcom's category-leading product portfolio serves critical markets including data center, networking, software, broadband, wireless and industrial. 

Nvidia Corporation is a computer technology company that has pioneered GPU-accelerated computing. It targets workstations, gaming, and high-performance computing markets. Nvidia is headquartered in Santa Clara, California.

FAQS:

Q: What is the estimated global market size of AI by 2030?

A: $827 billion

Q: What is Broadcom's AI strategy?

A: A combination of hardware and software to help customers meet their needs for AI infrastructure.

Q: What is Nvidia's GPU leadership in AI?

A: Nvidia's chips are the preferred choice for the AI computing industry, and the company continues to evolve its processors.

Q: What is the price-to-earnings ratio (P/E ratio) of Broadcom and Nvidia?

A: Broadcom's P/E multiple of 141 is far higher than the 54 for Nvidia shares.

Q: Which company is the better long-term investment between Broadcom and Nvidia?

A: Nvidia, due to its market leadership in AI chips, strong financials, and superior valuation compared to Broadcom.

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