Over the past few years, the artificial intelligence (AI) revolution has primarily focused on the training of large language models. The next phase involves testing and using these models in the real world. The wider deployment of those models into businesses' operations marks a momentous shift, and it will reward companies that focus on ensuring AI can scale effectively and perform as expected.
NASDAQ: AVGO
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AI inference requires Broadcom's specialty
This is a new era, the age of AI inference, also known as the "doing" phase. Trained models will now need to ingest new data and produce accurate predictions, make decisions, and problem-solve. In short, AI models will be expected to execute and deliver meaningful results.
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One company that stands to benefit most from this is Broadcom (AVGO +0.97%). This phase of the AI revolution requires a vast amount of power, networking, and infrastructure. Broadcom's semiconductor chips and software are fundamental components that will enable other companies to deploy artificial intelligence systems. Most importantly, Broadcom specializes in application-specific integrated circuits -- chips that are purpose-built to handle the precise types of workloads they will face. That contrasts with the graphics processing units made by Nvidia (NVDA +0.53%) and AMD, which are more flexible. The result is that Broadcom's chips can help data center operators cut costs while increasing efficiency.
Another advantage for Broadcom is that there's currently a global shortage of high-end chips. This means that chipmakers collectively have a lot of control over pricing. Even with the shortage, the chip market is expected to grow at a compound annual rate of 16.1%, according to a study from BCC Research. By 2030, the chip market could reach $1.6 trillion annually.
NASDAQ: NVDA
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Broadcom faces stiff competition, particularly from the world's largest company by market cap, Nvidia. Still, a market that size growing that fast means there's plenty of room for Broadcom to prosper as long as it can continue to execute effectively. It already serves some of the largest tech companies, including Alphabet, Meta Platforms, and Apple.
A rare growth and income opportunity
There's no doubt Broadcom will be a key player as AI moves from training mode to broader deployment, and this means there should be significant growth catalysts for the stock. It has already increased by 58% over the past 12 months. Broadcom stock also pays an annualized dividend of $2.60 per share, which at current prices gives it a yield of about 0.75%.
Broadcom is one of fewer than a dozen companies worldwide that have crossed the $1 trillion market capitalization threshold. While some analysts believe it is slightly overvalued due to the market baking AI excitement into the price, I believe Broadcom is worth the premium. Demand for the company's chips is going to last into the next decade. The proof is already in the pudding, as it cited in its latest earnings report a 28% increase in net revenue, a 97% increase in net income, and a 93% increase in earnings per share year over year.
