Nvidia has been one of the best stocks to own since 2023. But I think it could give up that title this year to Broadcom (AVGO +0.61%). While I still think Nvidia is a great investment overall, I think Broadcom could outperform it over the next few years.
Nvidia's computing ecosystem is still dominant, but with artificial intelligence (AI) workload starting to become more understood, custom AI chips, like those from Broadcom, could be the future. I think this will lead to monster growth for Broadcom and could easily allow it to outpace Nvidia's stock through the end of 2027.
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Broadcom's custom chip business is booming
Nvidia's graphics processing units (GPUs) are incredibly powerful computing units. Nothing compares to the ecosystem that Nvidia has created, and it can take a wide variety of workloads and perform a number of tasks on the same devices. However, this flexibility isn't needed if the computing unit is going to run only one workload type for its entire service life. That's where a custom AI chip from Broadcom shines.
Broadcom is partnering with AI hyperscalers to design application-specific integrated circuits (ASICs). These have been around for a long time and are commonly used for industry-specific equipment. Broadcom is taking this tried-and-true idea and adapting it for AI, a strategy that's working.
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Key Data Points
Broadcom's best example of a custom AI chip is the Tensor Processing Unit (TPU) from Google. These chips offer much cheaper inference and training costs versus GPUs, but are useful only in some scenarios. Still, they have become wildly popular among developers on the Google ecosystem, and other companies, like Meta Platforms, have reportedly purchased TPUs for their own AI computing ventures.
With capital becoming tight in the AI world, more and more AI companies are starting to develop custom AI chips with Broadcom. These are finally starting to enter production, and they're seeing huge demand. By the end of 2027, Broadcom expects its custom AI chips to be generating more than $100 billion annually. For reference, the division that includes these AI chips generated $8.4 billion in its past quarter as a whole, so Broadcom is expecting its custom AI chip business to more than triple over the next two years.
I think this growth will propel Broadcom to outperform Nvidia over the same time frame. This makes the stock an excellent buy now, especially since it recently was down around 25% from its all-time high.
