Semiconductor companies Nvidia (NVDA 1.25%) and Broadcom (AVGO 1.21%) are leading suppliers of artificial intelligence (AI) accelerators. Nvidia dominates the market with its graphics processing units, but Broadcom is gaining market share with custom alternatives.
Overall, Wall Street thinks both stocks are undervalued, but analysts view Nvidia as a much better buy at current prices.
- Among 70 analysts, Nvidia has a median target price of $250 per share. That implies 43% upside from its current share price of $175. And the highest target price of $352 per share implies 101% upside.
- Among 50 analysts, Broadcom has a median target price of $450 per share. That implies 25% upside from its current share price of $360. The highest target price of $525 per share implies 46% upside.
Here's what investors should know about these semiconductor stocks.
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Nvidia: 43% upside implied by the median target price
The investment thesis for Nvidia centers on its status as the industry standard in artificial intelligence (AI) infrastructure. The company is best known for its graphics processing units (GPUs), chips otherwise referred to as AI accelerators. Nvidia holds over 90% market share in data center GPUs, but it's also a leading supplier of generative AI networking equipment.
Nvidia has several important competitive advantages. First, it builds rack-scale systems that integrate GPUs, central processing units (CPUs), and networking to provide customers with a turnkey solution for data center infrastructure. Second, Nvidia systems consistently outperform products from competing chipmakers when benchmarked in an objective setting.
Third, Nvidia supports its GPUs with an unparalleled software ecosystem called CUDA. It comprises code libraries, frameworks, and pretrained models that help developers write applications across disciplines like predictive analytics, computer vision, conversational intelligence, and autonomous machines. CUDA runs only on Nvidia GPUs.
Nvidia recently got good news from the Trump administration. The company will be allowed to sell its H200 GPUs in China, the second-largest artificial intelligence market in the world. Increasingly strict export curbs have gradually locked Nvidia out of China, such that its market share has fallen from 95% to zero in the last few years. The new policy will give Nvidia a chance to reclaim its leadership position.
Wall Street expects Nvidia's earnings to increase at 37% annually over the next three years. That makes the current valuation of 43 times earnings look reasonable. I think Nvidia stock is a must-own for most investors eager to capitalize on the AI revolution, and now is a good time to buy a few shares.
NASDAQ: NVDA
Key Data Points
Broadcom: 25% upside implied by the median target price
The investment thesis for Broadcom centers on its strong market presence in Ethernet networking chips and application-specific integrated circuits (ASICs). The company builds the fastest Ethernet switching and routing chips, and it has more than 80% market share. Demand for high-speed networking chips should increase as the AI infrastructure buildout continues.
Broadcom is also the leading supplier of custom artificial intelligence accelerators, a type of ASIC purpose-built for training and inference workloads. The company develops custom silicon for five hyperscale customers -- Alphabet's Google, Meta Platforms, TikTok parent ByteDance, OpenAI, and Anthropic -- and it has other potential customers in the pipeline, including Apple and xAI.
Importantly, while ASICs themselves are often cheaper than Nvidia GPUs, system-level costs tend to be higher because they lack prebuilt software tools (so developers must build them from scratch), and they typically use costly optical interconnects rather than less expensive copper cables. That custom silicon often comes with a higher total cost of ownership, meaning Broadcom is likely a relatively small threat to Nvidia.
Indeed, Morgan Stanley analysts estimate that AI accelerator sales will increase at 34% annually through 2030, at which point Nvidia GPUs will still account for 85% of revenue. The remaining 15% market share will be divided among ASIC producers, with Broadcom likely to be the biggest winner.
Wall Street expects Broadcom's earnings to grow at 30% annually in the next three years. That makes the current valuation of 92 times earnings look expensive. Those numbers give a price-to-earnings-to-growth (PEG) ratio of 3, a significant premium to Nvidia's PEG ratio of 1.1. Both companies will continue to benefit from the AI revolution, but Nvidia is the more attractive investment at current prices.
