Chipmakers like Nvidia and Broadcom have skyrocketed in sales as Big Tech builds more data centers.
Broadcom is rapidly increasing its AI revenue, but its business includes more than AI chips.
Another large company has a more attractive stock price that has a higher chance of growth.
I like it more than 10 shares Broadcom›
Analyst estimates that the large tech companies are planning to spend $375 billion on artificial intelligence (AI) infrastructure this year. UBS. That number will rise to $500 billion next year.
The biggest cost item when building an AI data center is semiconductors. nvidia(NASDAQ: NVDA) So far, he was the biggest beneficiary of that spending. Its GPU offers best-in-class functionality for general AI training and inference. Other AI Accelerator chip manufacturers have also seen strong sales growth. Broadcom(NASDAQ: AVGO)Create custom AI and networking chips. This allows data to move efficiently from one server to another, minimizing downtime.
Broadcom's stock has risen more than five times since its launch in 2023, and now has a market capitalization of $1.4 trillion. Another year of epic growth can easily be put into a $2 trillion club. However, another semiconductor stock appears likely to be more likely to join Nvidia and the four other members of the club by 2028.
Image source: Getty Images.
Broadcom is a large company with hardware and software operations, but the AI chips business is currently operating vessels.
As a result, AI revenue rose 46% year-on-year to $4.4 billion. Management expects the current quarter to generate $5.1 billion in AI semiconductor revenues, driving growth to around 60%. AI-related revenues currently account for around 30% of Broadcom's revenue and are expected to continue climbing for the next few years.
Broadcom's acquisition of VMware last year was another growth driver. The software company is now fully integrated into Broadcom's large operations, and has achieved great success by upselling customers to the VMware Cloud Foundation, allowing businesses to run their own private clouds. Over 87% of customers have moved to new subscriptions, resulting in double-digit increases in recurring annual revenue.
However, Broadcom's stock is very expensive. The stocks earn a forward P/E ratio of 45. AI chip sales are rising rapidly, and the margins from VMware have improved significantly, but it's important that you don't lose sight of how broad the broader Broadcom companies are. Despite impressive growth in these two businesses, the company is still only growing topline at around 20% year-on-year. Investors should only look forward to improving their incoming incremental margins in order to expand their AI accelerator business. This means that while the business is set up for strong revenue growth, it is not enough to justify 45x revenue.
Another semiconductor inventory trades at a much more reasonable multiple and grows just as quickly.
Both Broadcom and Nvidia rely on different companies to create the world's most advanced semiconductors for AI training and reasoning. That company is Taiwan Semiconductor Manufacturing(NYSE: TSM)and actually print and package the designs of both companies. Almost every company designing cutting-edge chips relies on TSMC for its technical capabilities. As a result, the market share of semiconductor manufacturing has risen to more than two-thirds.
TSMC will profit from the noble cycle and ensure that it maintains and grows large market share. That technology lead will help you win big contracts from companies like Nvidia and Broadcom. This gives you capital to invest in expanding capabilities and research and development for next-generation processes. As a result, they maintain their technology leads while providing sufficient capacity to meet the growing demand for manufacturing.
The TSMC's cutting-edge process node, called N2, is reportedly charged a premium of 66% per silicon wafer in the previous generation (N3). This is a much greater price step up than historically managed, but the demand for the process is strong as companies are willing to use whatever they need to access the next bump of electricity and energy efficiency. TSMC usually increases new, expensive nodes with lower initial yields, resulting in a significant drop in gross profits, but current pricing will help maintain margins for many years as they move into more advanced processes next year.
Management expects an average annual growth rate of 40% for AI-related revenues from 2024 to 2029. AI chips remain a relatively small part of TSMC's business, with the overall revenue growth rate of the business being around 20%. To enhance the next two manufacturing processes, the ability to maintain a strong total margin should be able to generate operating profit growth of more than 20%.
TSMC's stock is trading at much more reasonable revenues, which is expected to be 24 times. This is a big price for stocks considering that the business generates revenue growth in the low 20% range. If you can maintain your earnings through 2028 while increasing your earnings at around 20% per year, then the stock is worth well over $2 trillion.
Consider this before purchasing stocks on Broadcom.
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Adam Levy holds positions in semiconductor manufacturing in Alphabet, Amazon, Apple, Microsoft and Taiwan. Motley Fools are located and recommend in semiconductor manufacturing in Alphabet, Amazon, Apple, Microsoft, Nvidia and Taiwan. Motley Fool recommends Broadcom and the following options are recommended: A $395 call at Microsoft for January 2026 and a $405 call at short term Microsoft for January 2026. Motley Fools have a disclosure policy.
Prediction: This AI semiconductor stock will join Nvidia, Microsoft, Apple, Alphabet and Amazon at $2 trillion clubs by 2028.
