Nvidia (NVDA +0.55%) has built an artificial intelligence (AI) dynasty over the past few years. In its earlier days, it was known as a chip designer focused on the video gaming market, but the company shifted into the high-growth AI opportunity early in the story -- and this resulted in explosive growth. Today, Nvidia sells its famous graphics processing units (GPUs) along with a wide range of products and services to power AI, and all of this has resulted in billion-dollar earnings -- and a more than $4 trillion market value for the company.
Nvidia looks positioned for long-term success in the AI market, but it's important to remember that it's not alone here. Other players have carved out a spot with offerings spanning the AI theme -- from chips to servers and capacity for running AI workloads. And one particular player has grown its presence in an area that could make it a Nvidia rival: the chip market. In fact, this company recently reported significant gains in revenue and a major customer win. Could this AI chipmaker surpass Nvidia by 2030? Let's find out.
Image source: Getty Images.
Soaring market value
This company, like Nvidia, has seen its market value soar in recent times -- in fact, it joined the "trillion dollar club" this year when its market capitalization reached $1 trillion for the first time ever. (The trillion dollar club isn't a real club, but instead a way of referring to companies that are valued $1 trillion or more.)
So, which company am I referring to? Broadcom (AVGO 0.19%), a networking specialist that plays an integral part in powering everything from smartphones to data centers. The company makes thousands of products used across many environments and also sells enterprise software solutions -- in fact, Broadcom serves most of the Fortune 500 companies with its software. All of this has helped Broadcom increase earnings into the billions of dollars over time.
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But what's truly been driving Broadcom's revenue in recent times has been its work in the AI market. Broadcom's top networking solutions -- such as Tomahawk switches and Jericho routers -- along with the company's AI chips, known as XPUs, have been gaining ground with big cloud service providers as they scale up their AI infrastructure.
Nvidia vs Broadcom
How do Nvidia's and Broadcom's AI chips compare? Nvidia's GPUs are the most powerful on the market and are general purpose, meaning they can supercharge any AI task. Broadcom designs XPUs to serve specific functions for customers, making them custom solutions. This clearly appeals to AI customers because Broadcom said the XPU business made up 65% of its AI revenue in the recent quarter and orders from three major customers continue to grow.
On top of this, Broadcom said it won a $10 billion order for AI racks based on its XPUs. The company didn't identify this new customer, but analysts have suggested it may be AI research lab OpenAI.
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Key Data Points
So, the advantage Broadcom offers customers is the ability to choose XPUs specific to particular tasks -- and these custom solutions may be cheaper than going exclusively for Nvidia's top GPUs.
Now, let's get back to our question: Could Broadcom surpass Nvidia by 2030? That's the year AI infrastructure spending may reach $4 trillion, according to Nvidia chief Jensen Huang. I think that Broadcom could see explosive growth by that time and clearly become a major AI player -- this should boost its stock performance and lead to gains in market value too.
Nvidia's expertise
But, even though Broadcom likely will carve out a leading market position, it's unlikely to unseat Nvidia. This is because Nvidia's general purpose expertise offers it a vast audience -- the company's GPUs and related products and services provide top performance and are able to supercharge any AI task, making them very versatile. That will appeal to many customers over time.
In fact, Nvidia's and Broadcom's chip offerings actually are complementary, and many customers may opt to integrate both in their data centers. The AI opportunity is an enormous one, and this is great news for these companies and investors because it indicates there will be many winners. Broadcom and Nvidia already have demonstrated this as they've reported skyrocketing earnings in recent years.
All of this means that even though Broadcom is unlikely to surpass Nvidia by 2030, the stock still makes a fantastic AI investment.
