Once upon a time, Intel (INTC 0.36%) was a millionaire-maker stock. If you had invested $10,000 in its initial public offering (IPO) in 1971, it would be worth $10.3 million today. However, that investment briefly blossomed to $37.9 million when the stock closed at its record high on Aug. 28, 2000.
Yet Intel hasn't generated any millionaire-making gains since then. Over the past decade, the chipmaker struggled with market share losses to AMD in the x86 CPU market, persistent shortages and delays, and abrupt strategic shifts under four different CEOs. It couldn't leverage its dominance of the PC and server CPU markets to expand into the higher-growth mobile and AI chip markets, while its own foundries fell behind Taiwan Semiconductor Manufacturing (TSMC for short) in the race to produce smaller and denser chips.
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From 2024 to 2027, analysts expect Intel's revenue to have an anemic compound annual growth rate (CAGR) of 2% as the company's new CEO, Lip-Bu Tan, tries to bolster its engineering capabilities, develop more CPUs with integrated AI features, strengthen the foundry business, and streamline spending.
Analysts expect Intel to stay unprofitable in 2025 as it spins all those plates, but they expect it to turn profitable again in 2026 and grow its net income more than sevenfold in 2027.
That's an optimistic outlook, but Intel could struggle to balance the rollout of its latest 18A chips with its cost-cutting -- which includes the divestments of its noncore assets, layoffs, and its dependence on TSMC to manufacture some of its new 2nm CPUs.
The stock also still looks overvalued relative to its peers at 74 times its forward adjusted earnings. So instead of betting on Intel's eventual recovery, it might be smarter to stick with another millionaire-maker semiconductor stock with a brighter future: Broadcom (AVGO 1.17%).
Broadcom has minted a lot of millionaires over the past 16 years
Avago Technologies, the chipmaker that acquired the original Broadcom and inherited its brand in 2016, went public in 2009 at a split-adjusted price of $1.50 per share. A $10,000 investment in that IPO would be worth $1.63 million today.
Prior to acquiring Broadcom, Avago produced a wide range of wireless, storage, networking, optical, and radio frequency chips. The original Broadcom competed against Avago in the storage and networking markets, but it also sold a wider variety of mobile, multimedia, and Wi-Fi/Bluetooth combo chips. By combining those two businesses, the "new" Broadcom supplied a diverse mix of essential chips for its enterprise, industrial, and mobile customers.
Unlike Intel, which manufactures most of its own chips at its foundries, Broadcom is a fabless chipmaker that outsources its production to TSMC and other third-party foundries. That strategy is less capital-intensive and is better insulated from delays and shortages.
Broadcom subsequently bought more companies, including Brocade, a provider of storage networking products, in 2017; the mainframe and enterprise software provider CA Technologies in 2018; Symantec's enterprise security business in 2019, and the cloud software giant VMware in 2023.
Those acquisitions turned Broadcom into a more diversified tech company that generated 42% of its revenue from its infrastructure software business in fiscal 2024 (which ended last November). The remaining 58% came from its semiconductor solutions business.
Broadcom is also a high-growth AI play
Most of the company's recent growth was driven by its sales of networking, optical, and custom accelerator chips to power the latest AI applications. In fiscal 2024, its sales of those AI-focused chips surged 220% to $12.2 billion and accounted for 24% of its top line. The rapid expansion of that business, which propelled its stock to fresh all-time highs last year, offset the slower growth of its non-AI chip and software businesses.
From fiscal 2024 to fiscal 2027, analysts expect Broadcom's revenue and earnings per share to have a CAGR of 18% and 80%, respectively. That robust growth should be driven by its soaring sales of AI chips, its integration and expansion of VMware's cloud ecosystem, and ongoing buybacks.
That's an impressive trajectory for a stock trading at 38 times its forward adjusted earnings, and it pays a forward yield of 1%. Intel suspended its dividend to stabilize cash flow last year.
Should you buy Broadcom instead of Intel?
So if you're looking for a diversified tech play with plenty of exposure to the booming AI and cloud markets, Broadcom seems like a much better investment than Intel.
While Intel might eventually recover as it gets its act together, it faces a tougher uphill battle than Broadcom, which doesn't face the same existential challenges as Intel.
