It's a leader in technology that powers artificial intelligence (AI) models. Its revenue is soaring. Its shares have skyrocketed. It announced a 10-for-1 stock split this year.
Which stock am I talking about? There are two correct answers: Nvidia (NVDA +2.06%) and Broadcom (AVGO +4.90%). However, Nvidia has been the bigger star of the two.
But could that change? Is Broadcom a better stock-split buy than Nvidia? Wall Street thinks so.
NASDAQ: AVGO
Key Data Points
What analysts think about Broadcom and Nvidia
Nvidia has been a Wall Street darling for several years. It's fair to say now, though, that there's no longer a consensus about the high-flying AI stock.
Three months ago, 54 of the 58 analysts surveyed by LSEG rated Nvidia as a "buy" or a "strong buy." However, of the 38 analysts surveyed so far in July, only 21 still put the stock in one of those two categories. Fifteen analysts now rate Nvidia as a "hold" with two recommending investors sell the stock.
The average 12-month price target for Nvidia compiled by LSEG from 48 analysts is a little below the current share price. The most pessimistic analyst (admittedly an outlier) thinks the stock could plunge more than 60%.
It's a much better story for Broadcom. LSEG surveyed 29 analysts this month to get their take on the stock; 27 of them rated it as a "buy" or a "strong buy." The remaining two analysts rate Broadcom as a "hold."
Granted, Wall Street doesn't think Broadcom will deliver the sizzling gains over the next 12 months that it has over the past year. However, the average price target for the stock reflects an upside potential of nearly 10%.
Why Broadcom is viewed more favorably
What changed to make Wall Street more bullish about Broadcom than Nvidia? The simple answer is that Nvidia has become a victim of its own success.
The stock is up more than 160% so far in 2024. This impressive performance comes on the heels of a gain of nearly 240% last year. Many analysts think Nvidia's sales will continue to grow robustly, but this growth is already baked into the share price.
NASDAQ: NVDA
Key Data Points
NewStreet Research analyst Pierre Ferragu even downgraded Nvidia stock recently from a "buy" to "neutral." He wrote to investors that he sees "limited further upside" for Nvidia after its tremendous returns over the last 18 months or so.
Meanwhile, Broadcom's valuation remains relatively attractive despite its strong gains. The stock trades at 29 times forward earnings, well below Nvidia's forward earnings multiple of 49.
Is Wall Street right?
I agree with analysts in some ways. Although Broadcom's valuation isn't exactly cheap, the company doesn't have to generate the dizzying level of growth that Nvidia must deliver to justify its premium price. You could argue that Broadcom is a lower-risk pick.
It wouldn't surprise me at all if Broadcom hits the average analysts' price target over the next 12 months (and probably sooner). The company should enjoy solid growth over the next few quarters from its VMware acquisition and demand for its AI accelerators.
However, I'm not completely on the same page as Wall Street's views about Nvidia. I've been guilty in the past of underestimating the chipmaker's growth potential. My hunch is that Nvidia's launch of its new Blackwell platform in the coming months could go better than most analysts expect. If so, look for multiple rounds of upward price target revisions in the not-too-distant future.
