There’s no doubt about that Nvidia(NASDAQ: NVDA) is the dominant player in the artificial intelligence (AI) chip market, as its graphics processing units (GPUs) have played a central role in training popular AI models such as ChatGPT and Llama.
The company’s tremendous technological lead in AI GPUs has given it a wide lead, and its rivals continue to lag far behind when it comes to AI GPU sales. As a result, Nvidia’s data center revenues rose a whopping 112% year-over-year to a record $30.8 billion in the third quarter of fiscal 2025, while AMDRevenue from this segment was just $3.5 billion in the most recently reported quarter.
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At the same time, some investors seem somewhat concerned about the relative slowdown in Nvidia’s growth. While the company’s total revenue rose a whopping 94% year-over-year to $35.1 billion in the previous quarter, that was slower than the 122% year-over-year increase Nvidia reported in the second quarter of its 2025 fiscal year.
The market outlook for the current quarter points to a 70% year-on-year increase in sales. Furthermore, Nvidia is trading at an expensive valuation. That could lead investors to look for alternative ways to profit from the growth of the AI chip market. Therefore, now would be a good time to take a closer look at a company that is being touted as the next best bet after Nvidia in the booming AI chip market.
This stock has already posted impressive gains this year and looks poised to rise further after the company reports its fourth-quarter fiscal 2024 results on Thursday.
Broadcom(NASDAQ:AVGO) is called the second most important AI chip company. It is the dominant player in application-specific integrated circuits (ASICs), a type of custom chip that is gaining prominence in AI due to its lower cost and power efficiency compared to the GPUs Nvidia sells.
More specifically, Broadcom controls an estimated 55% to 60% of the market for ASICs.
According to a forecast by analysts at market research firm Lucitel, demand for AI-specific ASICs will grow 32% annually through the end of the decade. That bodes well for Broadcom. Moreover, JPMorgan Analyst Harlan Sur believes that the cumulative revenue opportunity for Broadcom in the custom AI chip market is as much as $150 billion.
This helps explain why Broadcom management has increased its AI-specific revenue guidance. The company expects to end this fiscal year with AI chip revenue of $12 billion, up from its previous forecast of $11 billion. By comparison, generative AI was responsible for 15% of Broadcom’s 2023 semiconductor revenue of $28 billion – just $4.2 billion.
So Broadcom’s AI revenues are on track to nearly triple in just one year, and given the huge opportunity it presents in the custom AI chip market, it’s just at the beginning of a tremendous growth curve in this area. Additional positive news on this front could see Broadcom’s shares rise even further when it releases its quarterly report on Thursday.
The consensus estimate from analysts who follow the chipmaker is for fourth-quarter revenue of $14.06 billion, which would be a 51% increase from the prior year. Importantly, this includes the revenue contribution from VMware, which it acquired in November 2023. That revenue projection matches Broadcom’s estimate of $14 billion. However, now that the company has raised its full-year revenue guidance, there is a good chance that revenue will come in above Wall Street expectations.
Analysts expect adjusted earnings to rise to $1.39 per share from $1.11 per share a year ago, which would be a solid 25% increase. Given the increase in AI revenues, the result should ideally be better than Wall Street expectations.
At the same time, Broadcom’s dominant position in the fast-growing custom AI chip market should allow management to provide robust guidance for fiscal 2025, especially given that it is looking to push the technological boundaries in this area. Management recently pointed out that Broadcom has developed new technology to speed up its custom AI chips and pack more memory into them using its foundry partner’s advanced chip packaging technology, TSMC.
Broadcom currently trades at about 29 times forward earnings, almost in line with the average multiple of the tech-laden companies Nasdaq-100 index. That is an attractive valuation for this semiconductor stock. Investors should grab this opportunity quickly as the stock is likely to move higher after the quarterly report.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices, JPMorgan Chase, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
Prediction: These Artificial Intelligence (AI) Chip Stocks Will Skyrocket After December 12 Originally published by The Motley Fool
