Broadcom’s AI success won’t all come at Nvidia’s expense

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Subscribe to enjoy similar stories. 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.