There is little doubt that Nvidia (NVDA 0.93%) is the dominant participant available in the market for synthetic intelligence (AI) chips, as its graphics processing items (GPUs) have performed a central function in coaching common AI fashions corresponding to ChatGPT and Llama.
The firm’s terrific technological lead within the AI GPU area has given it a large moat, and its rivals stay approach behind it in terms of promoting AI GPUs. As a outcome, Nvidia’s knowledge middle income rose by a exceptional 112% yr over yr within the third quarter of its fiscal 2025 to a file $30.8 billion, whereas AMD‘s income from this section got here in at simply $3.5 billion in its most lately reported quarter.
At the identical time, some traders appear a tad involved in regards to the relative slowdown in Nvidia’s progress. Though the corporate’s complete income elevated a formidable 94% yr over yr within the earlier quarter to $35.1 billion, that was slower than the 122% year-over-year improve Nvidia reported within the second quarter of its fiscal 2025.
The market’s outlook for the present quarter factors towards a 70% year-over-year improve in income. Additionally, Nvidia is buying and selling at an costly valuation. That might lead traders to search for alternative routes to capitalize on the expansion of the AI chip market. That’s why now can be an excellent time to take a more in-depth have a look at an organization that has been touted as the subsequent greatest guess after Nvidia on the booming AI chip market.
This inventory has already delivered spectacular good points this yr, and it appears poised to fly larger after the corporate releases its fiscal 2024 fourth-quarter outcomes on Thursday.
Custom AI chip demand is powering this firm’s progress
Broadcom (AVGO -2.27%) has been referred to as the second-most-important AI chip firm. It’s the dominant participant in application-specific built-in circuits (ASICs), a kind of customized chip that is gaining prominence in AI due to its decrease value and energy effectivity in comparison with the GPUs that Nvidia sells.
More particularly, Broadcom controls an estimated 55% to 60% of the marketplace for ASICs.
According to a forecast by analysts at market analysis agency Lucitel, demand for AI-specific ASICs will develop at an annualized charge of 32% by way of the tip of the last decade. That bodes nicely for Broadcom. Moreover, JPMorgan analyst Harlan Sur believes that the cumulative income alternative for Broadcom within the customized AI chip market stands at a staggering $150 billion.
This helps clarify why Broadcom administration has been elevating its AI-specific income steerage. The firm expects to finish this fiscal yr with AI chip income of $12 billion, up from its earlier outlook of $11 billion. For comparability, generative AI accounted for 15% of Broadcom’s fiscal 2023 semiconductor income of $28 billion — simply $4.2 billion.
So, Broadcom’s AI income is on observe to almost triple in only one yr, and given its large alternative within the customized AI chip market, it’s only in the beginning of a terrific progress curve on this area. Additional upbeat information on this entrance might ship Broadcom inventory hovering even additional when it delivers its quarterly report on Thursday.
Broadcom appears more likely to ship better-than-expected outcomes
The consensus estimate from analysts following the chipmaker is for $14.06 billion in income in fiscal This fall, which might be a 51% improve from the prior yr. Importantly, that features the income contribution from VMware, which it acquired in November 2023. That income projection is according to Broadcom’s estimate of $14 billion. However, as the corporate has elevated its full-year income forecast, there’s a strong likelihood that its high line will land forward of Wall Street’s expectations.
Analysts expect its adjusted earnings to leap to $1.39 per share from $1.11 per share within the year-ago interval, which might be a strong improve of 25%. However, given the rise in its AI income steerage, its backside line ought to ideally be higher than Wall Street’s expectations.
At the identical time, Broadcom’s dominant place within the fast-growing customized AI chip market ought to enable administration to ship sturdy steerage for its fiscal 2025, particularly contemplating that it’s seeking to push the technological envelope on this area. Management lately identified that Broadcom has developed new tech to hurry up its customized AI chips and pack extra reminiscence into them utilizing the superior chip packaging know-how of its foundry accomplice, TSMC.
Broadcom trades at round 29 instances ahead earnings proper now, virtually according to the common a number of of the tech-laden Nasdaq-100 index. That’s a sexy valuation for this semiconductor inventory. Investors ought to contemplate grabbing this chance quickly, for the reason that inventory is more likely to fly larger after its quarterly report.
JPMorgan Chase is an promoting accomplice of Motley Fool Money. Harsh Chauhan has no place in any of the shares talked about. The Motley Fool has positions in and recommends Advanced Micro Devices, JPMorgan Chase, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure coverage.
