Broadcom Emerges as a Potential AI Powerhouse, Challenging Nvidia's Dominance

Could Broadcom Duplicate Nvidia's Performance as a Premiere Artificial Intelligence (AI) Stock? | The Motley Fool

Broadcom is another name that should be discussed when AI investing is mentioned. Nvidia has received considerable attention as the market's premiere artificial intelligence (AI) stock. This is for good reason, as its graphics processing units (GPUs) are in high demand to provide the computing power necessary to train these new generative AI models. However, this can't be done with just one or two GPUs. Instead, companies often use thousands of these devices connected together to accelerate the training time. This connectivity portion is where Broadcom (AVGO -0.79%) comes in and will also be a huge beneficiary of the AI movement. So, could Broadcom duplicate Nvidia's massive rise? Broadcom is a much wider company than Nvidia, as it not only sells these switches but also has application-specific integrated circuits (ASICs). These are (you guessed it) designed to handle a very specific task. Alphabet's tensor processing unit (TPU) is a chip that can outperform Nvidia's GPUs when an AI workload is set up correctly, and it is an example of an ASIC that Broadcom helped create. There are many more examples of Broadcom-designed ASICs that will compete against Nvidia GPUs, and this represents a significant growth opportunity. Should these GPU alternatives catch on, they could deliver significant growth for Broadcom. Although, management doesn't think these applications will ever compete toe-to-toe with Nvidia's GPUs. Thanks to its large VMware acquisition, Broadcom also has a software wing that ranges from cybersecurity to virtual desktops. It also has mainframe software, which is critical when companies greatly expand their computing capacity. If it sounds like Broadcom does a lot, that's because it does. This may be a problem for Broadcom over the long haul because it's not focused on any one area. So, if its connectivity switch business explodes while the software side struggles, the results may not look as good as Nvidia's, which is directly focused on its primary product. But this can also be a benefit since the growth should be fairly steady with fewer boom-and-bust cycles like Nvidia experiences. If you're looking to capitalize on a business with a large AI upside but without the business volatility, Broadcom could be a great pick. However, don't expect the same level of performance that Nvidia has given investors. But is the stock a buy at today's prices? Because Broadcom is undergoing a transformation period, the best way to value it is to use its forward price-to-earnings (P/E) ratio. At 34 times forward earnings, the stock isn't cheap. However, with revenue rising 43% year over year in Q2, investors will give it a pass. One thing to keep in mind, though, is that its VMware acquisition accounted for a large part of that growth. If you subtract that out, revenue rose 12% year over year. That's solid growth but maybe not enough to justify its stock price. However, the company's earnings are slated to grow significantly over the next few years. This growth should drive the stock higher and provide investors ample growth to pay the premium on the stock today. While Broadcom isn't going to match Nvidia's performance anytime soon, it does have strong tailwinds blowing in its favor and should see strong growth thanks to AI. It's a solid stock to buy in the market, especially for someone looking for a bit steadier business.

Move Over, Nvidia: Billionaires Have a New Favorite Artificial Intelligence (AI) Stock | The Motley Fool

While billionaires were busy dumping shares of artificial intelligence (AI) goliath Nvidia during the June-ended quarter, seven billionaire money managers were scooping up another leading AI stock. Over the last 30 years, no shortage of next-big-thing investment trends have graced Wall Street. Since the advent of the internet in the mid-1990s, no innovation, technology, or trend has come close to having the impact on corporate growth rates as the internet... until now. According to the analysts at PwC, the artificial intelligence (AI) revolution has the ability to increase global gross domestic product by more than $15 trillion in 2030. This is a mammoth addressable market that can support multiple big-time winners. Yet in spite of the euphoria surrounding AI on Wall Street, quarterly filed Form 13Fs with the Securities and Exchange Commission point to mixed feelings for artificial intelligence-inspired stocks. A 13F provides investors with a concise snapshot of which stocks the smartest and most-successful money managers have been buying and selling. In the June-ended quarter, billionaire investors sent shares of AI leader Nvidia (NVDA -2.10%) to the chopping block and decisively piled into what can be considered their new favorite artificial intelligence stock. What's particularly interesting about the selling activity in Nvidia is it marks the third straight quarter of selling by at least a half-dozen prominent billionaires. The June-ended quarter saw seven billionaire investors lighten their load, including (total shares sold in parenthesis): Profit-taking and the need to diversify are two possible answers as to why some or all of these billionaires felt the need to reduce their stakes in Nvidia. Since 2023 began, Nvidia's market cap has grown by $2.75 trillion, as of the closing bell on Aug. 23, 2024, which led to the company's largest-ever stock split (10-for-1) in June. This increase is due to the company's H100 graphics processing unit (GPU) becoming the standard in AI-accelerated data centers, as well as Nvidia possessing jaw-dropping pricing power, which is reflective of enterprise demand for its AI-GPUs overwhelming supply. But there are far more reasons than just profit-taking that might explain this ongoing billionaire exodus from Nvidia. One of the more logical conclusions to draw is that at least some of these billionaires are concerned about competitive pressures following its parabolic climb. Advanced Micro Devices (AMD -2.75%) is ramping up production of its MI300X AI-GPU and doesn't have the same chip-fabrication supply constraints as Nvidia. Further, AMD's chip typically sells for $10,000 to $15,000, which is far below the $30,000 to $40,000 Nvidia is commanding for the H100. Competitive pressures can manifest from within, as well. Nvidia's four largest customers by net sales -- Microsoft, Meta Platforms, Amazon, and Alphabet -- have developed in-house AI-GPUs for use in their data centers. Even though these in-house chips won't have the same computing capacity as Nvidia's H100, they're going to take up valuable data center "real estate" and minimize Nvidia's opportunities moving forward. These seven billionaire sellers might also be concerned about history. At no point over the last three decades has there been a hyped innovation, technology, or trend that managed to avoid an early stage bubble-bursting event. Without exception, investors always overestimate the utility and adoption of new innovations. Despite all the buzz with artificial intelligence, very few businesses have well-defined game plans as to how they're going to generate a positive return on their data center investment. This is a glaring warning that investors have, once again, overestimated the uptake of this technology. If and when the AI bubble bursts, no company is likely to be hit harder than Nvidia. But while billionaires were showing shares of Nvidia to the door, they were avidly scooping up shares of what can arguably be described as their new favorite AI stock. A total of seven billionaire money managers were buyers of shares of AI networking solutions specialist Broadcom (AVGO -1.99%) during the second quarter, including (total shares purchased in parenthesis): Keep in mind that the above share counts have been adjusted for Broadcom's 10-for-1 stock split, which occurred after the close of trading on July 12. Just as Nvidia's hardware has become a staple in high-compute data centers, Broadcom has quickly asserted its dominance as a key AI networking solutions provider. For instance, its Jericho3-AI fabric is capable of connecting up to 32,000 GPUs, with the goal of reducing tail latency and maximizing the computing capacity of these chips. While AI has undoubtedly been a catalyst, the reason I suspect billionaires have made Broadcom their favorite AI stock is that, unlike Nvidia, it's not entirely reliant on AI for growth. If the AI bubble bursts, Broadcom has a multitude of other revenue channels it can turn to as a cushion. For example, Broadcom has a leading position as a provider of wireless chips and accessories used in next-generation smartphones. Wireless companies have willingly spent billions to upgrade their networks to support 5G download speeds. In turn, this has led to a steady device-replacement cycle that's spurred demand for Broadcom's products. Beyond smartphones, you'll find Broadcom supplying networking solutions to businesses from all sectors and industries, along with cybersecurity solutions and financial software, to name some of its other ventures. Broadcom has also leaned on acquisitions as a way to expand its product and service ecosystem, promote cross-selling opportunities, and grow its bottom line. Its $69 billion buyout of cloud virtualization software provider VMware, which closed in November, is a perfect example of Broadcom broadening its reach in private and hybrid enterprise clouds.

If I Could Only Buy 1 Artificial Intelligence (AI) Semiconductor Stock Over the Next Decade, This Would Be It (Hint: It's Not Nvidia) | The Motley Fool

Nvidia has been the leader of semiconductor stocks over the last couple of years. Believe it or not, semiconductor chips are used for applications well beyond powering smart devices and electronics. For this reason, it's not entirely surprising that semiconductor stocks have been particularly big winners as the artificial intelligence (AI) revolution pushes forward. Among leading chip companies, Nvidia (NVDA -2.10%) stands out as the 800-pound gorilla right now. But with shares up 651% since August 2022, investors may want to consider what opportunities exist in the chip realm besides Nvidia. Let's dig into how Nvidia propelled itself into being the world's top chip business, and assess why another stock may be the better buy in the long run. Chips known as graphics processing units (GPUs) are used for a host of AI-powered applications such as training large language models, developing autonomous driving software, and machine learning. Nvidia's GPU roster includes its highly popular H100 and A100 chips, and the company's new Blackwell series is already forecast to be a smash hit (but more on that later). Indeed, Nvidia looks downright unstoppable, with a nearly 80% share of the AI-powered chip market. Nevertheless, I caution investors about going all-in on one company -- even if it is the de facto leader. Below, I'll break down in detail why Nvidia's time at the top may be drawing to a close. Many of the world's largest companies are currently customers of Nvidia. In fact, many "Magnificent Seven" companies, such as Microsoft, Tesla, Amazon, Meta, and Alphabet, have been touted as some of Nvidia's largest customers. Although a customer roster of that caliber is impressive, I question whether it's encouraging. Tesla CEO Elon Musk recently explained to investors that his electric vehicle company is exploring ways to compete with Nvidia more directly as Tesla looks to move away from a heavy reliance on H100 chips. Furthermore, many of the Magnificent Seven companies referenced above have made it clear that they too are investing significantly into capital expenditures (capex) to develop in-house chips. For example, I see Amazon's $11 billion data center infrastructure project as a clear sign that the company is looking to increase investment in its Trainium and Inferentia chips. What's amazing is that all of the competitors analyzed above are tangential to Nvidia. Designing semiconductors isn't a core component of any of their businesses. Perhaps Nvidia's most direct competitor at the moment is Advanced Micro Devices (AMD -2.75%). While AMD's growth during the AI revolution hasn't even been in the same universe as Nvidia's, I think those dynamics may soon change. Nvidia's momentum has hit some turbulence following a recent announcement that the new Blackwell chips will be delayed due to a design flaw. Although I suspect Nvidia will still sell out of these chips when they finally do hit the market, I think AMD has an opportunity to capture some new business right now. With all this said, I think it's only a matter of time before Nvidia's growth begins to decelerate. Subsequently, I would not be surprised to see the stock give back some of its record gains. Given the sheer number of competitors and the risks that come with commercializing new products and services, you're probably wondering which chip stock I actually do have full confidence in. Enter chip manufacturing company Taiwan Semiconductor (TSM -0.79%). You see, Nvidia, AMD, and many others do very little of their own manufacturing. Instead, after designing next-generation hardware, they outsource the actual manufacturing capability to Taiwan Semiconductor. Taiwan Semiconductor makes products for Nvidia, AMD, Amazon, Broadcom, Intel, Qualcomm, Sony, and many more. According to data from Market.us, the total addressable market (TAM) for the global AI chip market is expected to grow at a compound annual growth rate (CAGR) of 31.2% between 2024 and 2033 -- reaching a size of $341 billion. To me, Taiwan Semiconductor stands to benefit no matter what company is selling out their chips. Moreover, given the high likelihood of additional GPUs coming to market from big tech and the bullish forecast for the AI chip market more broadly, I see Taiwan Semiconductor as a clear winner over the next several years. Investors with a long-term horizon who are looking for alternatives to AI's most obvious opportunities among mega-cap tech may want to seriously consider a position in Taiwan Semiconductor right now.