Nvidia (NVDA 1.53%) is the king of artificial intelligence (AI) infrastructure. It has built a nice moat, particularly in large language model (LLM) training, as its CUDA software solution became the de facto way to program graphics processing units (GPUs) for AI workloads during the very early days when AI was in its early days of development. That has helped give the company an approximate 90% market share in the GPU space.
NASDAQ: NVDA
Key Data Points
Meanwhile, its revenue has soared nearly tenfold in the past three years, and its shares have risen nearly 1,200% to make it the largest company in the world. At the same time, the company is starting to see increased competition, and its market share has nowhere to go but down. While Nvidia still has a bright outlook, let's look at two alternative AI chip stocks that could have even bigger upside.
Image source: Getty Images.
Broadcom
Nvidia's biggest threat is coming from Broadcom (AVGO 1.63%), which is a leader in ASIC (application-specific integrated circuit) technology. Nvidia's GPUs were once disrupted by ASICs in the cryptocurrency market, and companies are now increasingly looking toward these pre-programmed chips as a cheaper alternative to Nvidia's GPUs to help power some of their AI workloads. While these chips are hardwired for specific tasks and lack the flexibility and adaptability of GPUs, they tend to perform the task for which they were designed very well, and importantly, they are more energy-efficient. This makes them particularly well-suited for inference, given that it is an ongoing cost.
NASDAQ: AVGO
Key Data Points
In the ASIC market, Broadcom provides customers the building blocks to create their own custom chips through access to its IP portfolio and the ability to get them manufactured at scale through its tight relationship with Taiwan Semiconductor Manufacturing. Broadcom helped Alphabet design its highly successful tensor processing units (TPUs), and it continues to participate in their success. Meanwhile, other companies, including OpenAI, have flocked to Broadcom for help in designing their own custom AI chips. This sets Broadcom up to see explosive growth over the next few years.
Broadcom produced just under $64 billion in total revenue last year, of which about $20 billion was related to AI. Analysts at Citigroup see Broadcom's AI revenue surging to surpass $50 billion this fiscal year and $100 billion in fiscal 2027. Those estimates don't even include Apple, which has reportedly been working with Broadcom on its own AI chip. This type of growth sets Broadcom stock up to be a huge potential winner in the coming years.
AMD
As the very distant No. 2 player in the GPU market, Advanced Micro Devices (AMD 3.46%) has long struggled against Nvidia in this market.
However, AMD has found some success in the inference market, where Nvidia's moat is not quite as wide. With the inference market eventually expected to become much larger than the one for training, this sets AMD up well to see strong revenue growth in the future.
NASDAQ: AMD
Key Data Points
AMD has already signed big data center deals with both Oracle and OpenAI. Oracle will deploy 50,000 AMD GPUs beginning in the second half of this year, with the cloud computing provider specifically saying they would be used for inference.
Meanwhile, OpenAI formed a partnership with AMD, taking an up to 10% stake in the company in the process, and will deploy 6 gigawatts of its GPUs in the coming years, which could be worth upwards of $200 million. In addition, it has also been reported that Microsoft has built toolkits to be able to run CUDA code on AMD's GPUs for inference workloads.
AMD is already the leader in data center central processing units (CPUs), and combined with its GPU business, the company thinks it can grow its data center revenue at a more than 60% compound annual growth rate (CAGR) over the next three to five years and its overall revenue by more than 35%. If successful, the stock would have a lot of upside from here.
