As big tech continues to pour record levels of capital into data center construction and chip procurement, semiconductor stocks have remained one of the strongest themes in the artificial intelligence (AI) trade.
While Nvidia is still the star of the show, rival platform Advanced Micro Devices has seen its share of investor enthusiasm, too. Moreover, Intel appears to be experiencing something of a renaissance, while shares of Micron Technology skyrocket as investors wake up to the importance of high-bandwidth memory solutions for AI workloads.
Given all of these moving pieces, Broadcom's (AVGO 0.28%) 55% gain so far this year seems overlooked relative to some of its peers in the chip landscape.
Let's explore how Broadcom is quietly benefiting from the AI revolution, and assess why the company's long-term prospects look compelling. From there, I'll break down why growth investors may want to consider a position in Broadcom as December approaches.
Broadcom is building momentum with AI's biggest spenders
Broadcom bifurcates its financials into two categories: semiconductor solutions and infrastructure software. Each of these markets benefits from rising AI demand.
On the semiconductor side of the house, Broadcom is seeing unprecedented demand for its custom application-specific integrated circuits (ASICs). Essentially, GPUs designed by Nvidia and AMD are purpose-built to handle a variety of tasks. Broadcom's ASICs enter the equation when developers need robust chipsets for application-specific features.
Broadcom has already won the attention of several hyperscalers for its custom silicon solutions. About a month ago, OpenAI and Broadcom announced a collaboration to deploy 10 gigawatts of custom AI accelerators over the next few years.
Moreover, Meta Platforms has reportedly been working with Broadcom on its own custom chip designs. Considering Meta CEO Mark Zuckerberg recently signaled to investors that the company will continue accelerating its capital expenditures (capex), Broadcom appears well-positioned to benefit from its ongoing relationship with the social media giant.
In addition, Broadcom also partners with Alphabet, playing a crucial role in building the internet behemoth's custom tensor processing unit (TPU) hardware.
Lastly, Broadcom's management recently revealed that the company has won a new $10 billion chip deal on top of its existing hyperscaler book. While the name of this customer remains a mystery, I recently outlined why I think it could be OpenAI rival Anthropic.
Given Broadcom's strong pulse on semiconductor solutions, it's no wonder the company holds an estimated 75% market share for custom ASICs.
Image source: Getty Images.
AI infrastructure is in its early innings
From a macro standpoint, investors have already gotten a detailed preview of how important infrastructure is for the broader AI movement. Earlier this year, OpenAI CEO Sam Altman, Oracle founder Larry Ellison, and Japanese billionaire Masayoshi Son of SoftBank announced a joint venture called Project Stargate. The goal of this initiative is to increase investment in U.S. AI infrastructure over the next four years.
When it comes to big tech specifically, research from Goldman Sachs forecasts that cloud hyperscalers Alphabet, Microsoft, and Amazon, in combination with Meta, will spend nearly $500 billion on AI capex next year alone. Perhaps even more bullish are the analysts at McKinsey & Company, which published a report suggesting that the total market size for AI infrastructure -- from chips, networking equipment, and energy solutions -- could be $7 trillion by the next decade.
This forecast aligns more closely with Nvidia CEO Jensen Huang, who has also suggested that AI infrastructure is a multitrillion-dollar market.
Against this backdrop, it could be argued that Broadcom's existing hyperscaler deals are small relative to the expected size of the overall AI infrastructure opportunity. Looked at through a different lens, Broadcom appears well-positioned to expand its relationships with developers as AI workloads scale and become increasingly complex -- demanding more custom solutions along the way.
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Why Broadcom looks like a great buy right now
As earnings season comes to a close over the next few weeks, Broadcom is expected to report financial results for the fourth quarter of its fiscal 2025 year in mid-December.
Using the "Magnificent Seven" as a proxy, it would appear that spending on AI infrastructure among the hyperscalers very much remains a priority. Given these secular tailwinds, I think Broadcom is well-positioned to accelerate both revenue and earnings growth in the AI infrastructure era.
Data by YCharts.
Moreover, Broadcom stock has climbed consistently throughout the AI revolution. If these trends are any indication, investors continue to place a premium on Broadcom stock following earnings reports (depicted in the purple circles above).
Broadcom stock might not appear like a downright steal at 38x future earnings. But when you consider the notion that AI infrastructure is still scaling in combination with the company's overall resilience during the last few years, Broadcom becomes a more compelling buy-and-hold opportunity for long-term investors -- making now an interesting time to consider pouncing on the stock.
