Broadcom stock has outpaced Nvidia over the past year, and a recent catalyst could fuel its next leg higher.
The company supplies a broad cross-section of data center hardware, and there is growing demand for its customizable artificial intelligence (AI) chips.
The stock is fetching a premium thanks to a recent run-up.
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The current wave of artificial intelligence (AI) adoption began in early 2023, after the introduction of ChatGPT highlighted the vast potential applications involving generative AI. Nvidia (NASDAQ: NVDA), with its industry-leading graphics processing units (GPUs), quickly became the standard-bearer for the AI revolution. Its stock has gained 1,160% since then, which has investors eager to find the next Nvidia, and a strong contender could be hiding in plain sight.
While Nvidia stock has gained a respectable 33% over the past year, Broadcom (NASDAQ: AVGO) has been on a tear, as its stock has soared 96% (as of this writing). Several recent developments help illustrate why investors are increasingly bullish on Broadcom stock, and why the company could well be the next Nvidia.
Image source: Getty Images.
GPUs have played a pivotal role in the advancement of AI, providing the computational horsepower required to power the large language models (LLMs) that underpin AI. One of the trade-offs, however, is that these power-hungry chips consume a great deal of energy. Thus far, most hyperscalers have been willing to pay the price to have the most advanced processors with the fastest speeds, not to mention the extreme flexibility offered by GPUs.
Since most AI processing occurs in data centers, Broadcom was already a beneficiary of AI, as management notes that “99% of all internet traffic crosses through some type of Broadcom technology.” The company pioneered the Ethernet switching and networking products that have become critical components in most data centers.
However, it’s Broadcom’s application-specific integrated circuits (ASICs) that offer the greatest potential for…
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