Nvidia (NASDAQ: NVDA) has proved itself to be one of the early winners in the artificial intelligence (AI) revolution, increasing earnings in the triple digits in recent quarters and pledging to keep innovating to supercharge growth. Stock performance has followed, with the shares soaring nearly 190% this year for the best performance in the Dow Jones Industrial Average — Nvidia recently was invited to join this top benchmark.
After all of these gains, though — in earnings and in stock price — you may be wondering if Nvidia still is the best AI player on the block, or if you should forget about Nvidia and turn to another growth story. One that’s attracted some attention in recent times is a company that, like Nvidia, completed a stock split this year as its share price soared. Still, though, this particular company trades for a reasonable valuation and may have plenty of growth ahead. Should you choose this stock over stock market star Nvidia? Let’s find out.
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So, which promising AI player am I talking about? A company that is known for networking — in fact, it sells thousands of products used in many locations, from data centers to your smartphone. More than 99% of all Internet traffic passes through technology from this player. I’m talking about Broadcom (NASDAQ: AVGO). The company has a track record of earnings growth, and in recent times, two new growth drivers have emerged: AI and Broadcom’s acquisition of cloud company VMware.
Both of these businesses helped Broadcom increase revenue 47% in the most recent quarter to more than $13 billion. Broadcom says it’s seen soaring demand from cloud service providers as they scale up their operations, and they’re piling into AI networking and custom AI accelerators from Broadcom. In the quarter, the company said custom AI accelerator revenue tripled, Ethernet switching rose fourfold, and PCI Express switches doubled.
Thanks to this strength, Broadcom now expects full-year AI revenue of $12 billion, up from an earlier estimate of about $11 billion.
It’s important to note that we may be in the early days of this AI demand as data centers upgrade current systems to prepare for accelerated computing. Nvidia chief Jensen Huang has said about $1 trillion in older computing systems exist today and must be updated over the next few years. This clearly could benefit Broadcom.
As for VMware, Broadcom recently promoted its VMware Cloud Foundation at a conference in Las Vegas — the product is a full software stack that virtualizes a data center and creates a private cloud for the customer. Bookings of the product helped the VMware platform reach an annualized booking value of $2.5 billion during the quarter, up more than 30% from the previous quarter.
