AI Chip Titans: Nvidia, Broadcom, and Super Micro's Market Dominance

Nvidia, Super Micro, or Broadcom? Meet the Artificial Intelligence (AI) Stock-Split Stock I Think Is the Best Buy and Hold Over the Next 10 Years. | The Motley Fool

Indeed, each of these stocks has done wonders for many portfolios over the last couple of years. However, I see one of these chip stocks as the superior choice over its peers. Let's break down the full picture at Nvidia, Supermicro, and Broadcom and determine which AI chip stock-split stock could be the best buy-and-hold opportunity for long-term investors. For the last two years, Nvidia has not only been the biggest name in the chip space but also essentially emerged as the ultimate gauge of AI demand at large. The company specializes in designing sophisticated chips, known as graphics processing units (GPUs), and data center services. Moreover, Nvidia's compute unified device architecture (CUDA) provides a software component that can used in conjunction with its GPUs, providing the company with an enviable and lucrative end-to-end AI ecosystem. While all that looks great, investors cannot afford to be starry-eyed due to Nvidia's existing dominance. The table below breaks down Nvidia's revenue and free-cash-flow growth trends over the last several quarters. Data source: Nvidia Investor Relations. Admittedly, it's hard to throw shade on a company that is consistently delivering triple-digit revenue and profit growth. My concern with Nvidia is not related to the level of its growth but rather its pace. For the company's second quarter of fiscal 2025 (ended July 28), Nvidia's revenue and free cash flow rose 122% and 125% year over year, respectively. This is a notable slowdown from the last several quarters. It's fair to point out that the semiconductor industry is cyclical, and a factor like that could influence growth in any given quarter. Unfortunately, I think there's more beneath the surface with Nvidia. Namely, Nvidia faces rising competition from direct industry forces, such as Advanced Micro Devices, and tangential threats from its customers -- namely, Tesla, Meta, and Amazon. In theory, as competition in the chip space rises, customers will have more options. This leaves Nvidia with less leverage, which will likely diminish some of its pricing power. In the long run, this could take a hefty toll on Nvidia's revenue and profit growth. For these reasons, investors might want to consider some alternatives to Nvidia. Supermicro is an IT architecture company specializing in designing server racks and other infrastructure for data centers. In recent years, soaring demand for semiconductor chips and data center services has served as a bellwether for Supermicro. Moreover, the company's close alliance with Nvidia has proved particularly beneficial. That said, I have some concerns with Supermicro. As an infrastructure business, the company relies heavily on other companies' capital expenditure needs. This makes Supermicro's growth susceptible to external variables, such as demand for data center services, chips, server racks, and more. Furthermore, Supermicro is far from the only IT architecture specialist in the market. Competition from Dell, Hewlett Packard, and Lenovo (just to name a few) bring their own levels of expertise to the marketplace. As a result of competing in such a commoditized atmosphere, Supermicro can be forced to compete on price -- which takes a toll on profit generation. Infrastructure businesses do not carry the same margin profile as software companies, for instance. Given that the company's gross margins are fairly low and in decline, investors must be cautious. While Supermicro's management tried to assure investors that the margin deterioration is the result of some logjams in the supply chain, more recent news might signal that gross margin is the least of the company's concerns. Supermicro was recently the target of a short report published by Hindenburg Research. Hindenburg alleges that Supermicro's accounting practices have some flaws. Following the short report, Supermicro responded in a press release outlining that the company is delaying its annual filing for fiscal year 2024. Given the unpredictability of demand prospects, a fluctuating margin and profit dynamic, and the allegations surrounding its accounting practices, I think investors now have better options in the chip space. By process of elimination, it's clear that Broadcom is my top buy-and-hold choice among chip stocks right now. This is not because Broadcom's returns this year have lagged its counterparts, though. The underlying reasons Broadcom's shares have paled compared to other chip stocks could shine some light on why I think its best days are ahead. I see Broadcom as a more diversified business than Nvidia and Supermicro. The company operates across a host of growth markets, including semiconductors and infrastructure software. Grand View Research estimates that the total addressable market for systems infrastructure in the U.S. was valued at $136 billion back in 2021 and was set to grow at a compound annual growth rate of 8.4% between 2022 and 2030. Systems infrastructure comprises opportunities in data centers, communications, cloud computing, and more. Considering corporations of all sizes are increasingly relying on digital infrastructure to make data-driven decisions, I see the role Broadcom plays in network security and connectivity as a major opportunity and think its recent acquisition of VMware is particularly savvy and will help unlock new growth potential. If you look at the growth trends in the chart above, it's obvious that Broadcom is not experiencing the same level of demand as Nvidia and Supermicro right now. I think this is because Broadcom's position in the broader AI realm is yet to experience commensurate growth compared to buying chips and storage solutions in droves. While I'm not saying Nvidia or Supermicro are poor choices, I think their futures look cloudier than Broadcom's right now. I believe Broadcom is in the very early stages of a new growth frontier featuring many different themes (with AI being just one of them). For these reasons, I see Broadcom as the best option explored in this piece and think long-term investors have a lucrative opportunity to scoop up shares and hold on tight.

If I Could Buy Only 1 Chip Stock Other Than Nvidia in September, This Would Be My Top Choice | The Motley Fool

Nvidia's volatility continues to have rippling effects throughout the technology sector and the broader market. In August, Nvidia stock was as low as $90.69 a share and as high as $131.26 a share -- representing a sizable range for such a short period of time. Nvidia reported earnings on Aug. 28, delivering parabolic growth and higher-than-expected guidance. And yet, the stock sold off. Nvidia stands out as a solid buy in the chip space for investors that can endure volatility. However, another stock worth considering now is infrastructure software and solutions company Broadcom (AVGO -10.36%). Here's why Broadcom is a unique opportunity in the semiconductor industry and could appeal to growth, income, and value investors alike. There are several different ways to invest in artificial intelligence (AI). It wasn't long ago that Nvidia's largest segment was graphics. But now, compute and networking (led by data centers) make up the vast majority of revenue and operating income. Nvidia makes graphics processing units (GPUs) that underpin its various AI computing platforms that can process high amounts of complex data and workloads. There are also companies like Meta Platforms, which is a major Nvidia customer. Meta leverages AI throughout its business to help customers improve the quality of their content creation, make content faster, optimize its search algorithm to keep users engaged, and more. Likewise, Microsoft's AI solutions, like Copilot for Microsoft 365, GitHub Copilot, and Azure AI for cloud infrastructure, are software upgrades that improve efficiency and save time. Broadcom has a significantly different approach to AI than these companies. It makes a variety of hardware and software solutions that serve customers in cloud infrastructure, data centers, networking, broadband, wireless, storage, industrial applications, enterprise software, and more. Its products are instrumental in global connectivity. The company has a diversified and proven business with tons of upside potential from AI. Broadcom's application-specific integrated circuits (ASICs) are high-performance custom silicon chips. ASICs don't have the range of functionality of GPUs, but they are highly effective solutions for specific tasks. Broadcom has been making ASIC solutions for more than three decades. Today, it makes custom silicon for clients who need to handle complex AI workloads. Broadcom leverages its intellectual property portfolio to create these custom ASIC AI accelerators. In this vein, they are more an extension of the company's core competencies rather than entirely new products. In addition to AI accelerators, Broadcom has seen a boom in Ethernet switches to support AI workloads. Broadcom has been doing Ethernet networking for over 25 years, capturing market share in cloud-scale networking, routing, and AI. Ethernet adapters are needed to meet the demand for higher data transfer speeds in high-stress network environments. High data volumes needed to train large language models require bigger server clusters and more connectivity. In sum, Broadcom's products complement GPUs and improve their performance, which allows customers to build bigger GPU clusters. Broadcom's results and guidance show that AI is helping accelerate growth. In its June quarter, Broadcom said it expects to generate more than $11 billion in revenue this year from AI chip sales -- representing over 20% of total revenue. Second-quarter 2024 revenue was up 43% year over year thanks to its November 2023 acquisition of VMware for $86.3 billion. VMware is a play on cloud computing and enterprise software. Taking out the contribution from VMware, Broadcom's sales growth has been somewhat disappointing -- mainly due to cyclical weakness in semiconductor revenue. Broadcom is transitioning all VMware products to a subscription licensing model, which should provide Broadcom a steady income stream and help offset some of the cyclical downturns in its hardware business. Another unique quality that separates Broadcom from many other chip stocks is its dividend, which has nearly doubled in the last five years and currently yields 1.4%. While the yield doesn't sound high, it's greater than the S&P 500 index's 1.2% yield right now. Although Broadcom has plenty of ways to monetize AI, it's not a make-or-break bet on the theme. This makes Broadcom a lower-risk bet than a pure-play AI growth stock whose earnings depend heavily on capital spending by big tech customers. Broadcom stock also sports a reasonable valuation. Its forward price-to-earnings (P/E) ratio is 32.4 -- which is around the same as that of software companies like Microsoft and Adobe and cheaper than Nvidia's 37.3 or Advanced Micro Devices' 41.7. Add it all up, and there's a lot to like about Broadcom as a worthy chip stock to buy in September and hold for at least three to five years.

2 Tech Stocks to Buy Hand Over Fist in September | The Motley Fool

These two tech leaders are tapping into artificial intelligence to fuel more growth. Artificial intelligence (AI) has quickly become the most important narrative in the tech industry as companies recognize the massive opportunity it creates, from enterprise productivity to cybersecurity. Already, a handful of companies have emerged as AI tech leaders, including semiconductor company Broadcom (AVGO -10.36%) and cybersecurity leader CrowdStrike (CRWD -3.91%). Here's why these tech stocks could be worth buying right now. Broadcom has emerged as a leading AI company thanks to the company's semiconductors and AI software. Investors who've followed the company for a while have likely noticed a shift toward AI chips lately -- and it's paying off in big ways. Broadcom makes custom AI chips used by Alphabet and other tech companies that have become a popular option for companies ramping up their infrastructure needs to compete in the AI market. At the same time, Broadcom's acquisition of VMWare has also boosted the company's AI-related infrastructure software sales, which spiked 200% year over year to $5.8 billion in the third quarter (which ended Aug. 4). Broadcom's total sales rose 47% in the most recent quarter to $13.1 billion, and non-GAAP net income of $6.1 billion was up about 33% year over year. The company's recent growth and its emergence as a top AI tech stock have pushed up demand for its shares, which now trade at a forward price-to-earnings ratio of 27. While that's not cheap, it's still relatively inexpensive compared to tech rival Nvidia, which has a forward P/E of 42. Investors may be wondering if there's room for Broadcom's AI chip sales to keep growing; management certainly thinks there is, because they estimate revenue from AI will be $12 billion for fiscal 2024. With demand for AI chips just ramping up, picking up shares of the company could be a great long-term move. CrowdStrike is a leader in cybersecurity, earning a top position because its Falcon platform offers companies comprehensive security solutions that are difficult to match. One reason CrowdStrike has been able to fend off rivals is that it has imbued its security platform with artificial intelligence. Falcon has had AI capabilities for years, and the platform continues to get smarter as it is trained on over 2 trillion security events daily. The company's commitment to create a leading cybersecurity platform has resulted in robust growth. Revenue in the second quarter (which ended July 31) rose 32% year over year to $963.9 million, and non-GAAP net income increased nearly 46% to $226.8 million. Growth in the quarter helped push CrowdStrike's free cash flow up 44% from the year-ago quarter to $272 million. Customers continue to expand their use of CrowdStrike's platform, with 65% of customers in the second quarter adopting five or more security modules on Falcon and 45% having six or more. If there's one drawback to CrowdStrike, it's that the company's shares trade at a premium. The stock's forward P/E ratio is 75, which is far above the cybersecurity industry average of about 22. But with CrowdStrike's leading position in security and its Falcon platform continually improving through AI, I think picking up some of the company's shares after their 16% dip over the past three months could be a smart decision.