If you believe the hype, artificial intelligence (AI) is one of the most groundbreaking technological advancements ever. This may be an exaggeration, but only time will tell, but it is already clear that this technology has commercial power. Its impact on the market is significant, and its proponents are: NVIDIA (NASDAQ: NVDA),participate apple and Microsoft As one of the largest companies in the world.
Nvidia's stock price surge prompted the company to split its stock 10-for-1, opening the door to investors who had been too priced out of investing. Now, another company operating in the AI space is also splitting its stock. Broadcom (NASDAQ: AVGO)The company, which designs, manufactures and sells the hardware and network infrastructure that enables AI programs to run, plans to split its stock later this summer.
So, the question is: Can Broadcom deliver the same kind of profits as Nvidia?
Revenue growth is impressive, but it's inflated by big acquisitions
Broadcom is in growth mode, with first-quarter revenue up 34% year over year and second-quarter revenue up 43% compared to Q2 2023.
Did you notice the big increase recently? The inflection point in the second half of 2023 is important. This growth isn't actually organic, much of it is acquisition driven. The company acquired VMware, a very successful cloud software company, for $69 billion in November 2023, adding that company's revenue to Broadcom's revenue.
Excluding this additional revenue from VMware, the company's second-quarter revenue increased 12% year over year, which is less spectacular than the headline-grabbing 43% increase.
Looking at future earnings, the company appears to be fairly valued.
Still, 12% organic growth is not negligible and reflects the growth of Broadcom's AI-centric business. Communications within the AI server farms that power platforms such as ChatGPT is a critical aspect and one where Broadcom excels: its PCIe and Ethernet technologies are among the best on the market, which has led to the popularity of its products.
“Our AI product revenue reached a record $3.1 billion in the quarter,” Broadcom President and CEO Hock Tan said during the company's latest earnings call. The company expects to continue to post record revenue thanks to a combination of its growing AI business and solid acquisitions. The company raised its revenue outlook for this year to $51 billion, up 42% from 2023.
So what does this mean in terms of how fairly valued the company is? Looking at the company's forward P/E ratio, it looks pretty solid at about 34. This is in line with many of the big tech companies and significantly lower than Nvidia's 48.
Broadcom is a solid company, but it will have a hard time competing with NVIDIA.
Broadcom's growth prospects are promising, but in my opinion, they are not comparable to Nvidia's, which is growing revenue at a much faster pace than Broadcom and is growing organically without relying on costly acquisitions. Consensus estimates have Nvidia growing revenue at more than double Broadcom's rate by the end of this fiscal year and continuing to do so next year.
And the difference is even larger when you look at net income. Look at the difference over last year.
It's not just the acquisition that's affecting this: Nvidia expects to operate at roughly 20% higher margins than Broadcom this year.
Beyond the numbers, Nvidia has shown great vision as a pioneer in AI. While difficult to quantify, visionary leadership is a factor that cannot be underestimated. As the industry matures and competition intensifies, Nvidia's leadership may help it maintain its leading position.
But at the end of the day, Broadcom remains a great investment with a solid track record and bright prospects. Is Broadcom the next Nvidia? I don't think so, but it doesn't have to be.
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Jonny Rice has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple, Microsoft, and Nvidia. The Motley Fool recommends Broadcom and recommends buying Microsoft's January 2026 $395 calls and selling Microsoft's January 2026 $405 calls. The Motley Fool has a disclosure policy.
The article Artificial Intelligence (AI) Stock Split Gets Confusing Again: Is Broadcom the Next NVIDIA? was originally published on The Motley Fool.
