Nvidia has been the face of the artificial intelligence (AI) race since it began in 2023. However, there's another competitor that's looking to take over Nvidia's leadership role: Broadcom (AVGO 0.54%).
While Broadcom has its fingers in many parts of tech, its most promising segment is its AI chip business, and it's growing rapidly. Broadcom is already a $1.6 trillion company, but could it find its way near the top and become the next Nvidia? Let's take a look.
Broadcom's custom AI accelerators are a GPU alternative
Broadcom's AI semiconductor division gets its revenue from two primary sources: Custom AI accelerators and connectivity switches. Broadcom's connectivity switches, like the Tomahawk3, are used in data centers to stitch workloads back together after they have been split up to be processed among multiple computing units. This makes Broadcom's connectivity switches vital for data centers, regardless of what computing unit is being used.
This product line has seen strong growth, but it's nothing compared to the potential of Broadcom's custom AI accelerator chips, which it calls XPUs. Broadcom's XPUs are designed in collaboration with end users to ensure the architecture is suited for the workloads it will see. By designing a custom chip around a specific workload for each client, XPUs can have greater performance than Nvidia's graphics processing units (GPUs). Additionally, because the end user is working directly with Broadcom, these units are far cheaper than anything from Nvidia.
NASDAQ: AVGO
Key Data Points
The combination of better performance at a lower cost is a no-brainer, and that's why companies like Alphabet and Meta Platforms have allegedly (Broadcom doesn't reveal who its XPU clients are) invested heavily in their XPUs. Additionally, it announced that a new client placed an order for $10 billion worth of XPUs. This has been linked to OpenAI, the creator of ChatGPT, giving Broadcom the status of providing computing units for nearly all of the top generative AI models.
So, is Broadcom set to replace Nvidia?
Nvidia still has more to gain from the AI buildout than Broadcom does
The reality is that these AI hyperscalers know what their AI workloads will look like. However, cloud infrastructure companies, like Alphabet, Amazon, and Microsoft, must continue purchasing Nvidia GPUs because clients want flexibility. Furthermore, if one of the AI hyperscalers wants to try something different to run workloads in a new way, they'll need the flexibility of a GPU.
So, Nvidia isn't going away, but I'd expect Broadcom's chips to become far more popular over the next few years. We're already seeing that now, as Nvidia's data center revenue rose 56% year over year while Broadcom's AI semiconductor revenue rose 63%. Broadcom will need to maintain that quicker growth pace if it is to rise to be in true competition with Nvidia, but with how rapidly demand for XPUs is growing, I wouldn't be surprised if that's the case.
During its third-quarter fiscal year 2025 (ending Aug. 3) announcement, Broadcom predicted that it would generate $6.2 billion in AI semiconductor revenue during the fourth quarter, up from $5.2 billion in Q3. That's rapid quarter-over-quarter growth, but it is still slower than Nvidia's peak growth pace last year.
NASDAQ: NVDA
Key Data Points
Time will tell how well Broadcom's XPUs do, but I'd wager that Broadcom's AI semiconductor division will grow faster than Nvidia for the foreseeable future. However, because Broadcom is far more diversified than Nvidia, it won't deliver the same explosive growth. Despite its AI semiconductor revenue growing at a 63% pace, Broadcom's overall revenue increased at a 22% pace during Q3. Nearly all of Nvidia's revenue comes from data centers, and its 56% data center growth pace was identical to its overall revenue growth rate.
As a result, Nvidia still looks like the better stock pick here. It's more exposed to the AI data center buildout trend, as long as that spending holds up. With AI hyperscalers all announcing record capital expenditure for 2026, I think it's safe to assume that this trend will continue. Although Broadcom is an excellent pick, I still think Nvidia will outperform it through 2026.
