There’s a new trillion-dollar AI chip maker in town. The old one is still going to do just fine.
Broadcom’s fiscal fourth-quarter report last week included a long-term forecast for its artificial-intelligence business that has lighted up its stock price and pushed the company’s market capitalization past $1 trillion. It also appears to have done the opposite for Nvidia: The AI chip titan’s stock has shed about 4% over the past two days while Broadcom’s has surged by 38% in that time.
The gap is still wide. Nvidia closed trading Monday at a market capitalization of around $3.3 trillion compared with Broadcom’s roughly $1.2 trillion. But Broadcom is still breathing some rarefied air as the recent surge has boosted the chip maker’s stock price to more than 38 times projected earnings for the next four quarters. That is the highest multiple the stock has ever commanded and double its three-year average, according to data from FactSet. It is also the first time Broadcom has fetched a premium to Nvidia since the former’s merger with Avago in early 2016 that effectively created the company in its current form. Nvidia’s shares closed Monday around 31 times forward earnings.
There are good reasons for investors to get excited about Broadcom’s potential. The company’s diverse chip business gives it a few areas of exposure to the hot AI market. Broadcom is a top supplier of networking processors that manage connections between data-center components, such as the chip clusters Nvidia makes. It is also a key partner to large tech companies such as Alphabet’s Google and Meta Platforms that are designing their own artificial-intelligence chips for their data centers.
Custom AI chips, also called ASICs, can perform some of the same AI workloads as Nvidia’s offerings. Thus, Broadcom’s strong projection last week from typically conservative Chief Executive Officer Hock Tan could be seen as a worrisome sign for Nvidia’s own growth potential. During the company’s earnings call with analysts, Tan said Broadcom’s three largest big-tech customers are expected to spend between $60 billion and $90 billion in the fiscal year ending October 2027 on ASIC chips and networking components, the two AI chip markets Broadcom serves.
Broadcom doesn’t expect to land all that business; Tan described the figures as the company’s “serviceable addressable market,” or SAM. But the comments were still seen as a projection for strong growth from the $12.2 billion in AI revenue Broadcom reported for the just-ended fiscal year.
“Assuming Broadcom can achieve even the low end of the SAM range, we see a pathway to $12+ in EPS by CY27,” wrote Blayne Curtis of Jefferies.
Broadcom reported $4.87 in adjusted per-share earnings for its latest fiscal year. Marvell Technology, Broadcom’s smaller rival in custom ASIC chips for big tech companies such as Amazon, also is enjoying explosive growth. Marvell’s total revenue is expected to surge 40% for its fiscal year ending in January 2026.
But such in-house chips don’t fully offset the need for Nvidia’s market-leading silicon. Notably, the two tech giants furthest along in their chip efforts, Google and Amazon, both also frequently tout their relationship with the AI kingmaker.
“We have a wonderful partnership with Nvidia,” Google CEO Sundar Pichai said on the company’s latest earnings call.
“It’s not a zero-sum game,” said analyst Stacy Rasgon of Bernstein in an interview. Big tech companies with the resources can design chips to run certain highly specific workloads more efficiently than chips from outside providers. “But there’s no free lunch,” Rasgon said, adding that such chips aren’t flexible.
He also noted that major customers of the cloud services those big tech companies provide don’t want to get locked into a single, proprietary computing source. “Enterprise customers all want flexibility, and they’re all writing on CUDA,” he said, referring to Nvidia’s large AI software coding library that is key to the company’s deep competitive moat.
Hence, the market still expects big things from both Nvidia and Broadcom. Most analysts who cover the duo rate both stocks as a buy, even as Broadcom’s share price has eclipsed most brokers’ price targets. Broadcom’s AI business is also still a fraction of Nvidia’s, which reported $98 billion in data-center revenue for the 12-month period ended October.
Wall Street expects Nvidia’s data-center revenue to more than double in the next two years, which will still be about 10 times Broadcom’s projected AI revenue at the same point, according to consensus estimates from Visible Alpha. Broadcom’s next trillion dollars may not come as easily as the first.
Write to Dan Gallagher at dan.gallagher@wsj.com