Nvidia Corp (NASDAQ: NVDA) has led the AI-related gains in 2024. However, others are strongly benefitting from a continued focus on artificial intelligence as well. One such name is Broadcom Inc (NASDAQ: AVGO) that’s rallied an exciting 800% since the start of the COVID pandemic.
Simply put, AVGO shares have turned $1,000 into $9,000 (excluding dividend payments) between March 2020 and September 2024. But is it done rallying already? Did you miss the boat? Let’s explore.
Broadcom is a different AI play than Nvidia
Broadcom is a key beneficiary of artificial intelligence but one that’s playing the frenzy quite differently than Nvidia.
Instead of challenging Nvidia in mass-market GPUs, Broadcom is making a name for itself in customized AI chips. It designs application-specific integrated circuits (ASICs) for a very distinct set of AI tasks to cater to a precise need of its customers.
Broadcom counts big names like Google as customers and there have been rumors that Meta Platforms has signed up to use its ASICs for AI workloads as well. Additionally, ChatGPT maker OpenAI is also reportedly in talks with AVGO to join its list of top chip customers.
Custom AI chips are a rapidly growing market considering Broadcom started this year expecting about $7.5 billion in AI revenue but is now calling for up to $12 billion as “customers continue to scale up and scale out their AI clusters” in 2024.
JPMorgan estimates the total addressable market for AVGO’s custom AI chips to hit $150 billion within the next five years. That makes up for a strong enough reason to anticipate further gains and invest in Broadcom stock today.
AVGO is relatively cheaper than NVDA
Broadcom remains worth owning despite the massive year-to-date rally also because it has recently undergone a 10-for-1 stock split.
That’s significant since stocks tend to outperform the benchmark and that too by a huge margin in the 12 months after the split, as per a recent study. Why? Because stock splits improve liquidity as they make shares of any given company more accessible for retail investors.
Plus, AVGO shares are still inexpensive to own compared to the likes of Nvidia or even Advanced Micro Devices Inc (NASDAQ: AMD). Broadcom currently has a forward price-to-earnings multiple of 28 versus 30 for AMD and 43 for Nvidia.
Some expect AVGO to soon be a $1.0 trillion company.
Broadcom stock has an upside to $210
Broadcom has a more diversified business than its AI rivals as it also manufactures networking components that are widely used in data centers.
Plus, a $69 billion acquisition of VMWare adds software services to its list of offerings as well and makes up for another good reason to have AVGO stock in your portfolio, as per TD Cowen analyst Matthew Ramsay.
The investment firm reiterated its “buy” rating on the multinational chipmaker last week and said its shares could climb further to $210 signaling potential for another 22% upside from here.
Ramsay cited AVGO’s third-quarter earnings release for his bullish view on the semiconductor stock. Broadcom is playing the AI frenzy as a hardware “and” software company, which sufficiently explains why its share price will likely run further to the upside in the months ahead.
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