Nvidia vs. Palantir: AI Stock Showdown Amid Market Shifts

This Is the Best Stock-Split AI Stock to Buy Right Now | The Motley Fool

The rise of artificial intelligence (AI) has led to massive stock gains for some companies. In a few cases, the increase was so significant that it prompted a company to initiate a stock split. Admittedly, the stock split may have happened for a variety of reasons, including an attempt to avoid the appearance of overvaluation. Nonetheless, when accounting for factors such as the business, growth rates, and valuation, one stock-split stock stands out as an excellent buy. The stock-split stock in AI to buy right now is Broadcom (AVGO -4.46%). The company recently initiated its first stock split in its history, splitting shares 10-for-1. Still, the 9,200% growth in the stock price since its 2009 initial public offering (IPO) likely justified such a split. Investors should also note that this increase does not include dividend payments, and the payout growth is so significant that today's annual dividend of $2.10 per share is 40% above the split-adjusted IPO price of $1.50 per share. Today's Broadcom is made up of its original semiconductor services segment, though a series of acquisitions means that more than 40% of its revenue now comes from its infrastructure software segment. However, both segments make extensive use of AI. Broadcom's semiconductor segment supports other enterprises directly, employing engineers near its largest clients and collaboratively developing chips to solve its clients' problems. Today, such problem-solving capabilities call for AI. AI also plays a role in Broadcom's enterprise software business. Its AIOps applies AI and machine language to data monitoring. From there, it can deliver insights from data coming from various sources, which could improve digital experiences for partners, employees, and customers. Despite such benefits, shareholders need to put Broadcom's finances into perspective. In the first two quarters of fiscal 2024 (ended May 5), its revenue of $24 billion rose 39%, a growth rate boosted by AI and its purchase of software virtualization company VMware in November. Nonetheless, Broadcom's net income dropped 52% in the first six months of fiscal 2024 to $3.4 billion. The company dramatically increased its spending on research and development, probably to improve its AI capabilities. Selling, general, and administrative expenses also spiked, likely because of the costs of acquiring VMware. Hence, spending on operating expenses was more than $10 billion during that time, an increase of 152%. Such costs are long-term investments in the future growth of the company, which should have a positive impact on profits eventually. Investors appeared to agree, and the stock rose 68% over the last year, increasing its need for a stock split. Still, some might see Nvidia as the stock-split stock of choice, especially given its dominance in the AI chip market. Additionally, Nvidia's P/E ratio of 66 is only marginally higher than Broadcom's 65 earnings multiple, a P/E ratio increased by the recent drop in profits. However, the overvaluation is more obvious when looking at other measures. Nvidia sells at a price-to-sales (P/S) ratio of 35, compared to 16 for Broadcom. The contrast is even more stark when measured by the price-to-book value ratio. Broadcom sells at 10 times its book value. While that is not cheap, it is far lower than Nvidia, which trades at a staggering 56 times its book value. That may mean any growth slowdown could lead to a massive pullback in its stock. Ultimately, investors looking for a stock-split stock in the AI industry may struggle to do better than Broadcom. Thanks to its semiconductor and software businesses making extensive use of AI, the stock has experienced a surge so massive that it finally led to its 10-for-1 stock split. Although the company has sacrificed short-term profits to invest in itself, the rapidly rising revenue shows Broadcom remains on a growth trajectory. Moreover, while Nvidia may hold the technical lead in AI, the valuations measured in sales or book value show the extent to which Nvidia has become overvalued. Such a comparison shows Broadcom as a bargain with potentially more unrealized growth potential.

Forget Nvidia: Billionaire Ken Griffin Raised His Position in This Rival AI Stock by More Than 500% | The Motley Fool

Griffin increased his position in a company that's reported a triple-digit increase in AI revenue. Nvidia (NVDA -7.04%) shares have soared, resulting in a major boost for investors that got in on the shares early. And many billionaire investors have benefited -- including Ken Griffin, chief executive of Citadel. Griffin initially bought Nvidia back in 2013, and as recently as late last year his fund held more than three million shares of the artificial intelligence (AI) chip giant. But Griffin wasn't a buyer of Nvidia in recent months. In fact, in the first quarter of this year, he reduced his position in Nvidia by 68% to about 1.1 million shares. And at the same time, he increased his holding of another AI stock by more than 500%. Does this mean that, like Griffin, you should forget Nvidia and bet on this AI player? Let's find out. First, it's important to note investors have a pretty good reason for following Griffin's path. Since launching Citadel back in 1990, Griffin has built the fund to $63 billion in investment capital today. And Citadel has scored recognition as the most profitable hedge fund ever. So, when Griffin makes a particular bet on a stock, it's worth taking note -- and in some instances, you may decide to follow. Now let's consider the billionaire's latest move. The hedge fund giant increased his position in Broadcom (AVGO -4.46%) by more than 500% to about 295,000 shares, a clear sign of confidence in this AI company. Griffin has probably already started to win from this move since the stock has advanced about 35% so far this year. And the company completed a 10-for-1 stock split earlier this month, offering current holders additional shares to lower the per-share price of its stock. This doesn't change the value of Griffin's holding -- or yours if you're a Broadcom shareholder -- but it does offer shareholders a greater number of shares. A stock split is generally positive for a stock over time as it allows a wider range of investors to more easily buy it. We don't know the exact reason why Griffin decided to increase his holding of Broadcom in the triple digits, but there's a lot of evidence showing Broadcom could be an AI winner down the road. In the most recent quarter, the semiconductor and networking giant said AI revenue surged 280% to more than $3.1 billion. Demand from mega-scale data centers for AI networking and custom accelerators is driving this growth, the company says. As these data centers, or hyperscalers, continue to expand, Broadcom is seeing more and more growth in its networking business. The company doubled the number of switches it sold in the quarter year over year and now is developing next-generation switches and optics that should drive a new wave of growth. Broadcom is optimistic about this growth continuing, and considering forecasts for the AI market, there's reason for investors to be confident about the company's future too. Today's $200 billion AI market is set to reach more than $1 trillion later this decade. It's important to remember that right now more than 99% of Internet traffic travels through a Broadcom technology -- so the company, as a leader, is well positioned to benefit from the AI boom. On top of this, Broadcom also is seeing growth from its acquisition of cloud software company VMware. In fact, it predicts VMWare will help drive a 42% increase in annual revenue this year to about $51 billion. So, is it time to forget Nvidia and turn to Broadcom? It's important to note that the companies could be considered rivals or peers because they are both chipmakers. But, while Nvidia is more focused on serving data centers with chips and other related products and services, Broadcom's business covers a lot more territory. The company makes thousands of products used not only in data centers but also in home connectivity, smartphones, and telecommunications in general. So, while Broadcom is growing thanks to AI, it doesn't depend on this market as much as Nvidia does -- this could make Broadcom a safer bet over time. Still, it's also key to remember Citadel's Griffin hasn't exited his Nvidia position. He holds a considerable number of shares. So, the billionaire clearly hasn't lost faith in Nvidia and continues to believe the stock could generate solid returns. All of this means there are reasons to be optimistic about both of these AI stocks. That said, one thing right now supports the idea of forgetting Nvidia and following Griffin into Broadcom, and that's valuation. Broadcom trades for 31x forward earnings estimates compared to 41x for Nvidia. This is a very reasonable price considering the company's track record of growth and potential for gains from AI and the VMware acquisition. And that's why, right now you may want to forget Nvidia, and follow billionaire investor Griffin into Broadcom.