It's getting difficult to sort through all of the artificial intelligence (AI) noise out there. Some people are warning of a looming AI bubble popping, while others are sounding the alarm about software companies being disrupted. And some are still saying AI's long-term impact is overstated.
As with many things in life, there may be a shred of truth to all of them. The AI market is still taking shape, making it difficult to predict where it's headed. But that doesn't mean there aren't some clear winners.
Here's why semiconductor company Broadcom (AVGO 2.99%) is in a unique position to benefit and why buying some of its shares could be a smart move.
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Booming AI infrastructure spending is accelerating Broadcom's business
Broadcom designs application-specific integrated circuits (ASICs) used extensively in artificial intelligence data centers, and the surge in spending on AI compute power has accelerated Broadcom's sales and earnings.
The company's AI revenue more than doubled in the first quarter (which ended Feb. 1) to $8.4 billion, and Broadcom's non-GAAP (generally accepted accounting principles) earnings per share jumped 28% to $2.05. Management believes AI revenue will continue to grow, reaching an estimated $10.7 billion in the second quarter and at least $100 billion in chip revenue in 2027. And research from Morningstar says Broadcom's estimate of AI sales doubling in 2027 could be "conservative."
Broadcom is in a unique position to continue benefiting from the AI boom because the company holds a dominant position in AI ASIC processors, with a growing market share expected to reach 60% by next year, according to CounterPoint Research.
That lead will help Broadcom capture much of the AI spending surge that's currently underway. Meta Platforms, Microsoft, Amazon, and Alphabet have all announced capital expenditures, mostly for AI, that collectively amount to $650 billion in spending this year. As these companies battle it out for AI dominance, Broadcom can sell them all processors and just sit back and benefit no matter who comes out ahead.
NASDAQ: AVGO
Key Data Points
Broadcom is a buy, but just keep an eye on this
Given Broadcom's current growth, estimates for more AI sales in 2027, and the company's market share, there are plenty of good reasons to own Broadcom right now.
If there's one word of caution, it's that at some point, all of the AI spending will slow down. Bears think this is just around the corner, but until it becomes clear that tech companies are pulling back on their data center investments, it's probably best not to be sitting around waiting for the sky to fall.
Instead, buying some Broadcom shares and holding for the long term looks like a good idea right now. Just keep a close eye on any shift in AI spending, whenever it comes.
