Nvidia vs. Broadcom: Which AI Chip Stock Should You Invest in by 2025?

As 2024 unfolded, Nvidia (NASDAQ: NVDA) continued to dominate the artificial intelligence (AI) infrastructure sector. Yet, Broadcom (NASDAQ: AVGO) is poised to pose a significant challenge in 2025.

Both companies performed impressively in 2024, with Nvidia’s shares climbing more than 170% year to date at the time of this writing, and Broadcom’s shares increasing about 107%. Looking ahead to 2025, we explore which of these semiconductor giants might be the better investment.

The Surge in AI Infrastructure

Throughout the AI boom, Nvidia has emerged as the top beneficiary. Its graphics processing units (GPUs) have become essential to AI infrastructure, excelling in training large language models (LLMs) and managing AI inference tasks through their superior parallel processing capabilities.

Nvidia has also secured its leadership in the GPU market through its CUDA software platform. Initially developed to help programmers use its GPUs for various applications beyond traditional graphics rendering, CUDA has become the go-to software for training GPUs, giving Nvidia a formidable competitive edge with approximately a 90% market share in the GPU arena.

This combination of high-performance GPUs and the widespread adoption of CUDA has propelled Nvidia to significant growth, especially as major tech companies strive to develop more powerful AI models. In the first nine months of fiscal 2025, which ends in January 2025, Nvidia’s revenue skyrocketed by 135% to $91.2 billion, and in the last quarter alone, its revenue jumped 94% to $35.1 billion.

As AI models increasingly require more computing power, Nvidia’s future growth prospects appear robust. Recent versions of Alphabet’s Llama AI model and xAI’s Grok model, for instance, use up to ten times more GPUs than their earlier versions. Moreover, Nvidia’s major hyperscale clients are planning to boost their AI infrastructure spending next year, viewing AI as a pivotal generational opportunity. Analysts predict that Nvidia’s revenue will grow by just over 50% next year.

While Nvidia has excelled in the AI chip market, Broadcom has been carving out a niche by helping clients create bespoke AI chips. Broadcom’s application-specific integrated circuits (ASICs) are tailored to meet specific customer needs, enhancing performance and energy efficiency.

Alphabet was among the first to harness Broadcom’s capabilities to develop its own custom AI chip, resulting in a tensor-processing unit (TPU) called Trillium, optimized for Google’s TensorFlow AI and machine learning framework. These TPUs boast unique features like a matrix multiply unit (MXU) and a proprietary interconnect topology, setting them apart from standard GPUs and enhancing their AI training and inference capabilities.

Despite rumors of Alphabet potentially bypassing Broadcom, Broadcom secured the contract to design the next generation of Alphabet’s TPUs. Furthermore, Broadcom has expanded its client base with significant players like Meta Platforms and ByteDance, as well as newer additions such as OpenAI and Apple.

During its most recent earnings call, Broadcom disclosed that its three largest custom AI chip clients represent a market opportunity of $60 billion to $90 billion in fiscal 2027, with plans to deploy one million custom AI chips by then. This expansion is notable, considering it took Alphabet 15 months to design and implement its custom TPUs in its data centers.

Though the potential for Broadcom in the AI sector is substantial, there is a clear distinction between market potential and expected revenue. Broadcom also operates extensively in other semiconductor and software sectors, which are not growing as rapidly. Excluding its acquisition of VMware, the company’s organic revenue grew by only 11% last quarter, with analysts forecasting a revenue increase of 18% for the fiscal year ending October 31, 2025, and 14% the following year.

Market Evaluation and Final Thoughts

Currently, Nvidia’s stock is more attractively priced than Broadcom’s, with a forward price-to-earnings (P/E) ratio of about 30 compared to Broadcom’s 33. Nvidia’s revenue growth is also surpassing Broadcom’s and is expected to continue its rapid pace into 2025. Additionally, Nvidia holds about $30 billion in net cash, while Broadcom carries $48.3 billion in net debt.

Despite the enthusiasm surrounding Broadcom’s AI market potential—evident from its stock performance in December—Nvidia remains the more economical option and is poised for quicker revenue growth in the short term.

While there is some investor uncertainty about the future leader in the AI chip market, Broadcom’s advancements do not necessarily detract from Nvidia’s prospects. GPUs retain greater versatility than custom chips and remain the industry standard. However, the industry’s desire for alternatives to Nvidia is clear, driven by concerns over its potential market dominance.

Both Nvidia and Broadcom could be strong performers in 2025, but Nvidia seems the more appealing choice currently, given its superior growth rates and more attractive valuation.

Suzanne Frey, an executive at Alphabet, is on The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is also a board member. Geoffrey Seiler owns shares in Alphabet. The Motley Fool owns and recommends shares in Alphabet, Apple, Meta Platforms, and Nvidia. The Motley Fool recommends Broadcom and has a disclosure policy.

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