Investors looking for artificial intelligence (AI) stocks have plenty of options. But while there’s no shortage of AI stocks to choose from, a few stand out from the rest.
Broadcom (NASDAQ:AVGO) is one of the technology companies that is a unique player in the artificial intelligence market and could be a good long-term investment. Here are three reasons why the stock is a buy right now.
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One of Broadcom’s biggest opportunities comes from the application-specific integrated circuits (ASICs) used in its AI data center infrastructure. Leading technology companies including Alphabet And Metaplatformsare already using Broadcom’s chips to help with their AI infrastructure, and more capabilities could be on the way.
Enterprises continue to expand their data centers and AI training needs, creating the perfect environment for Broadcom’s high-end niche semiconductors, with one JP Morgan Analysts estimate that the company’s total market for AI chips could reach $150 billion.
Results for the third quarter (ended September 30) showed how well Broadcom is leveraging its AI prospects, with management raising its guidance for AI chip sales for fiscal 2024 to $12 billion, up from from the previous estimate of $11 billion.
Broadcom is tapping into a unique AI opportunity with its ASICs at a time when tech giants are investing mountains of money in AI data centers. Goldman Sachs estimates that companies will spend $1 trillion building out AI in the coming years, and rival Broadcom Nvidia thinks the amount could be as high as $2 trillion over the next five years.
Broadcom’s AI revenues are already rising thanks to demand for data center chips, and this is likely to continue as more companies expand their AI capabilities. In late October, ChatGPT maker OpenAI began using Broadcom to design an internal chip that it will use for AI.
Regardless of which of the spending estimates is more accurate, it’s clear that tech companies are investing a lot of money in AI infrastructure, and Broadcom’s early lead with its AI semiconductors should continue to pay off for the company as spending increases.
Even with Broadcom’s share price up 96% in the last twelve months (at the time of writing), the shares are slightly cheaper compared to some of their peers.
Broadcom’s forward price-to-earnings (P/E) ratio is currently 27.6, which is cheaper than Nvidia’s forward P/E ratio of 34 and Advanced micro devices‘28.4. While it’s not necessarily cheap, it is technically cheaper, making it a potentially better deal for investors looking for well-priced AI stocks.
