Key Points
Nvidia (NASDAQ: NVDA) is at the top of the AI computing food chain, holding the largest market share by far and being quite a bit larger than most of its competitors. However, Broadcom (NASDAQ: AVGO) is taking a different approach to the AI computing world and also looks like a strong contender, especially as its custom AI chips gain popularity.
Both of these make for fantastic AI investments and are easily in my top five best stocks to buy now, but which one has the better bull case? Let’s take a look.
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Nvidia is quite a bit larger than Broadcom
Broadcom is the new kid on the block, while Nvidia is the established giant. Nvidia makes broad-purpose computing units, known as GPUs. GPUs can handle a wide variety of workloads and are incredibly powerful. GPUs have been used for nearly every computing application that requires a lot of computing power, and AI has been no different.
Nvidia’s products were by far and away better than everyone else’s at the start of the AI race, and that really hasn’t changed. Nvidia has become synonymous with data centers and computing, and there’s a good reason for that.
However, GPUs are not always the best tools for the job. While GPUs can run nearly every workload incredibly well, they aren’t optimized for everything. In fact, some GPUs work their whole computing lifespan on one workload, wasting a lot of their capabilities. That’s where an ASIC, application-specific integrated circuit, makes a lot of sense. ASICs have been around for a while, and Broadcom is bringing that concept to the AI world to make computing units that are purpose-built for their end user.
While these computing units can’t compete with the GPU in terms of flexibility, they can outperform GPUs in a specific task at a lower price point.
The question isn’t if the future holds GPUs or custom AI chips; it’s what kind of mix the AI hyperscalers will be buying. If the projections from these two are to be believed, then it’s clear that GPUs will still hold a fair bit of market share moving forward.
Broadcom is gaining ground, but not fast enough
Broadcom issued bold guidance for future growth, but it has already exceeded previously established figures, so it has a track record of outperforming expectations. For fiscal year 2027, Broadcom expects to generate $115 billion in AI semiconductor revenue. In FY 2028, that figure doubles to $230 billion. Those are great growth figures, and any Broadcom investor is excited about seeing those numbers. However, Nvidia has already exceeded those figures by a long shot.
During the second quarter, Nvidia generated $96.2 billion in revenue. For Q3, it expects $108 billion. More than 90% of Nvidia’s revenue comes from its data center division, so Nvidia’s quarterly revenue figures nearly exceed what Broadcom expects to generate from AI semiconductors during FY 2027. That’s a sizable gap, but with Broadcom doubling its revenue again in FY 2028, can Broadcom expect to gain ground?
It may gain some.
For FY 2027, Nvidia estimates its revenue growth will be around 70%. While this is slower than Broadcom’s AI semiconductor growth rate, it’s still very fast.
So, which computing unit will reign supreme? It’s clear that Broadcom’s custom AI chips are growing faster and taking some market share, but Nvidia’s GPU-based products are still dominant and are rapidly growing as well. I don’t think Nvidia investors have anything to worry about with Broadcom, and each looks like a solid buy.
However, between the two, I’m giving the nod to Nvidia. It’s hard to argue with the universal nature of its GPUs, where Broadcom is one slip-up away from losing a major client. However, I’d also buy the argument that Broadcom is the better pick due to its faster growth. Regardless of which stock you choose (you don’t have to pick only one), I think you’ll be satisfied with the returns these two provide over the next few years.
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Keithen Drury has positions in Broadcom and Nvidia. The Motley Fool has positions in and recommends Broadcom and Nvidia. The Motley Fool has a disclosure policy.
