Better AI Stocks: Nvidia vs. Broadcom

Over the past year, companies have raced to adopt artificial intelligence (AI) technologies, boosting sales for semiconductor chip makers Nvidia (NVDA -1.59%) AND Broadcom (AVGO 2.20%). Both sell the components required to deploy AI in data centers designed for cloud computing, the perfect place for AI to meet its need for massive computing power.

As a result, Broadcom and Nvidia are positioned to benefit for years to come as the AI ​​industry grows from a global market worth $136 billion in 2023 to an estimated $827 billion in 2030. That’s one reason why owning stock in both companies is a great way to invest in the secular AI trend.

But if you had to choose just one of these semiconductor giants to invest in, which would be a better AI investment? Here’s an analysis of each to get you the answer.

Broadcom’s AI Strategy

Broadcom is dedicated to the AI ​​market with a range of products that support multiple technology verticals, including data centers, wireless networks, and industrial applications. The company’s AI strategy includes a combination of hardware and software to help customers meet their AI infrastructure needs.

On the hardware side, Broadcom’s products include AI accelerators, a necessary component of AI computing acceleration. Its custom AI accelerator business grew year over year by more than threefold in the fiscal third quarter, ended Aug. 4.

Driven by demand for AI-related products, sales of the company’s semiconductor business rose to $7.3 billion in the fiscal third quarter, up from $6.9 billion a year earlier.

On the software side, Broadcom acquired VMware in late 2023, so its software division’s revenue in the third quarter rose to $5.8 billion from $1.9 billion a year earlier. The addition of VMware enabled total revenue in the third quarter to grow 47% year over year to $13.1 billion.

Broadcom is using VMware Cloud Foundation (VCF) to reach companies that want a private cloud or a hybrid of private and public clouds for their AI systems. The strategy is succeeding. VCF accounted for 80% of VMware product bookings in Q3.

Broadcom ended its fiscal third quarter with respectable financial results, including free cash flow (FCF) of $4.8 billion. Its balance sheet included total assets of $168 billion, including $10 billion in cash and equivalents. Total liabilities were $102.3 billion, including $70 billion in debt.

Nvidia’s Approach to Artificial Intelligence

Nvidia’s AI success centers around its graphics processing unit (GPU), which is the heart of an AI system’s ability to perform complex calculations. The company also provides a comprehensive set of software and other services, such as a robotics platform, to help companies leverage AI.

The semiconductor giant pioneered the GPU in 1999, continually improving it over the years. Today, Nvidia’s chips are the go-to choice for the AI ​​computing industry.

The company continues to develop its processors, with its new Blackwell GPUs set to ramp up production this year. According to Nvidia, Blackwell is the world’s largest and most powerful GPU, packing more than 200 billion transistors.

Its GPU leadership in AI helped Nvidia achieve a record $30 billion in revenue in its fiscal second quarter, ended July 28, up 122% from a year ago. The company expects continued sales growth, forecasting fiscal third-quarter revenue of $32.5 billion, up from $18.1 billion a year earlier.

Nvidia’s AI strategy includes expanding its GPU capabilities into various industries, such as automotive to enable autonomous vehicles. Additionally, CEO Jensen Huang believes that the cloud computing market, worth nearly $600 billion by 2023, will transform existing infrastructure to support AI systems. This would be a huge market opportunity for chipmakers like Nvidia.

In addition, the company’s investment appeal is reinforced by NVIDIA’s excellent financial performance. Its financial cash flow in the fiscal second quarter was $13.5 billion. Its balance sheet in the second quarter consisted of $85.2 billion in total assets, including $34.8 billion in cash, cash equivalents and marketable securities. Total liabilities were $27.1 billion, including $8.5 billion in debt.

Broadcom vs Nvidia stock decision

Because the AI ​​market is large and growing, both Broadcom and Nvidia should continue to see sales growth. However, Nvidia saw the largest revenue growth last year when AI took off, illustrating customer demand for its products.

Data by YCharts.

Another factor to consider for any stock is the price-to-earnings (P/E) ratio, a commonly used metric to assess valuation. At the time of writing, Broadcom’s P/E of 141 is significantly higher than Nvidia’s 54, indicating that Nvidia is the better pick.

Broadcom and Nvidia are currently trading below their 52-week highs. However, its AI chip leadership, strong financials, and higher valuation compared to Broadcom make it a better long-term investment between these two semiconductor titans.