Nvidia has been the undisputed winner of the artificial intelligence trade, as the leader in creating chips and network infrastructure that power AI solutions. However, there are plenty of competitors trying to get in on the action. After all, the potential market for AI is expected to be so big that just a small connection to the market can send a stock soaring.
Two stocks that have been clumped in with the AI trade and that make chips and other AI infrastructure are Broadcom (AVGO 2.82%) and Advanced Micro Devices (AMD 0.87%). Broadcom has performed well, with its stock up nearly 86% over the last year. Meanwhile, AMD has struggled, with its stock down nearly 36%.
Wall Street analysts currently expect one of these companies to grow earnings faster in 2025, but the other to outperform in stock price appreciation over the next 12 to 18 months. Let's take a look.
Broadcom: 223% earnings growth
While Nvidia has made its name by dominating the broad chip market, Broadcom has focused on creating custom chips for some of the large tech players like Alphabet, Amazon, and Microsoft.
After the emergence of DeepSeek, a Chinese company that claims to have developed an AI chatbot at a fraction of the cost of competitors', many think custom chips will be the path forward, which bodes well for Broadcom. Others also suspect Broadcom has locked up new customers like OpenAI, the creator of ChatGPT. The company has now topped a $1 trillion market capitalization
For its fiscal year ended in November, Broadcom only reported $1.27 of earnings per share, but most of this was due to the amortization of intangibles related to the company's acquisition of VMWare in late 2023. On an operating basis, diluted earnings came in at $4.86. Wall Street analysts on average expect the company to grow diluted earnings to $4.01 in fiscal 2025 and generate operating diluted earnings of $6.35, according to data provided by Visible Alpha.
NASDAQ: AVGO
Key Data Points
On the company's last earnings call, management expressed bullishness on the custom chip market and thinks the company will play a role as hyper-scalers roll out their own custom AI accelerators or chips. Broadcom cited its three hyperscaler customers and said that together, their journeys represent an AI serviceable addressable market (SAM) for custom chips and network in the $60 billion to $90 billion range in fiscal 2027.
Broadcom's stock has performed well, and analysts think it is fairly valued at this point. While no analysts are saying to sell, 27 have issued research reports on the company over the last three months, according to TipRanks. The average price target implies very minimal upside. Analysts don't seem bearish on the company at all, so it may be more of a valuation call to let the stock catch its breath. Broadcom currently trades at close to 37 times forward earnings.
Advanced Micro Devices: 147% earnings growth
Being in the AI game is a big deal, which is why investors are often discussing Advanced Micro Devices. However, AMD's main problem is that it has to compete against Nvidia, a company generating gross profit margins in the mid-70s percentile and demonstrating extreme pricing power. According to experts, AMD manufactures cheaper chips than Nvidia, but they're only about 80% as powerful.
Still, Wall Street analysts currently expect earnings to grow nicely this year -- from $1.00 in 2024 to $2.47 in 2025, according to Visible Alpha. On an operating basis, analysts expect earnings to grow from $3.31 to $4.62. However, we'll see how long these last after AMD's recent earnings disappointed the market. The company beat on estimates and even delivered revenue guidance ahead of consensus.
But revenue in the company's data center segment came in lighter than expected, which disappointed investors given how much the market is growing. After earnings, some analysts expressed concern about the outlook for growth in AMD's AI business.
NASDAQ: AMD
Key Data Points
Despite weaker data center numbers, analysts are still largely bullish on the stock. A total of 36 analysts have issued research reports on the company over the past three months, according to TipRanks. Of these, 24 analysts rate the stock a buy, 11 say to hold, and only one says to sell. The average price target suggests nearly 33% upside from current levels (as of Feb. 11).
The discrepancy between AMD and Broadcom looks to be based on valuation. While Broadcom trades at 37 times forward earnings, AMD trades at around 23 times. In the near term, AMD may have more room to run on any change in sentiment. However, Broadcom seems to be better positioned to take advantage of current trends in the AI market.
