If I could only buy one non-Nvidia chip stock in September, this would be the best choice

Nvidiavolatility continues to have ripple effects throughout the technology sector and the market at large. In August, Nvidia stock was as high as $90.69 per share and as high as $131.26 per share — a considerable range for such a short period of time.

Nvidia reported earnings on August 28, offering parabolic growth and higher-than-expected guidance. And yet, the stock sold. Nvidia stands out as a solid buy in the chip space for investors who can handle volatility.

However, another stock worth considering now is the software and infrastructure solutions company Broadcom (NASDAQ: AVGO). Here’s why Broadcom is a unique opportunity in the semiconductor industry and could appeal to both growth, revenue and value investors.

Investment opportunities in AI

There are several different ways to invest in artificial intelligence (AI).

It wasn’t that long ago that Nvidia’s biggest segment was graphics. But now, computing and networking (led by data centers) account for the vast majority of revenue and operating income. Nvidia makes graphics processing units (GPUs) that underpin its various AI computing platforms that can process large amounts of complex data and workloads.

There are also companies like Meta platformswhich is a major Nvidia customer. Meta uses AI across its business to help clients improve the quality of their content creation, create content faster, optimize their search algorithm to keep users engaged, and more. Also, MicrosoftIts AI solutions, such as Copilot for Microsoft 365, GitHub Copilot, and Azure AI for cloud infrastructure, are software updates that improve efficiency and save time.

Broadcom has a significantly different approach to AI than these companies. It produces a variety of hardware and software solutions that serve customers in cloud infrastructure, data centers, networking, broadband, wireless, storage, industrial applications, enterprise software and more. Its products are central to global connectivity.

The company has a diversified and proven business with tons of upside potential from AI. Broadcom’s application-specific integrated circuits (ASICs) are high-performance custom silicon chips. ASICs don’t have the range of functionality of GPUs, but they are highly efficient solutions for specific tasks. Broadcom has been producing ASIC solutions for more than three decades.

Today, it makes custom silicon for customers who need to handle complex AI tasks. Broadcom leverages its intellectual property portfolio to create these custom ASIC AI accelerators. In this sense, they are an extension of the company’s core competencies rather than entirely new products.

The story continues

In addition to AI accelerators, Broadcom has seen a boom in Ethernet switches to support AI workloads. Broadcom has been making Ethernet networks for over 25 years, capturing market share in cloud-scale networking, routing and AI. Ethernet adapters are required to meet the demand for higher data transfer speeds in high-stress network environments. The large volumes of data needed to train large language models require larger server clusters and more connectivity.

In conclusion, Broadcom products complement GPUs and enhance their performance, enabling customers to build larger GPU clusters.

Broadcom delivers and raises its dividend

Broadcom’s results and guidance show that AI is helping to accelerate growth. In its June quarter, Broadcom said it expects to generate more than $11 billion in revenue this year from sales of AI chips — accounting for more than 20 percent of total revenue. Revenue in the second quarter of 2024 increased 43% year-over-year, thanks to the November 2023 acquisition of VMware for $86.3 billion. VMware is a cloud computing and enterprise software play.

Factoring in VMware’s contribution, Broadcom’s sales growth was somewhat disappointing — mainly due to cyclical weakness in semiconductor revenue. Broadcom is transitioning all VMware products to a subscription licensing model, which should provide Broadcom with a steady stream of revenue and help offset some of the cyclical downturns in its hardware business.

Another unique quality that separates Broadcom from many other chip stocks is its dividend, which has nearly doubled over the past five years and currently yields 1.4%. While the yield doesn’t sound high, it’s more than that S&P 500 index yield of 1.2% right now.

Broadcom is a balanced buy

While Broadcom has plenty of ways to monetize AI, it’s not a good bet on the topic. That makes Broadcom a lower-risk bet than a pure-play AI growth stock whose earnings depend heavily on capital spending by big tech customers.

Broadcom stock also has a reasonable valuation. Its forward price-to-earnings (P/E) ratio is 32.4 — about the same as software companies like Microsoft and Adobe and cheaper than Nvidia 37.3 or Advanced microdevices41.7.

Add it all up, and there’s a lot to like about Broadcom as a chip stock worth buying in September and holding for at least three to five years.

Should you invest $1,000 in Broadcom right now?

Before buying Broadcom stock, consider the following:

The Motley Fool Stock Advisor the analyst team has just identified what they think they are 10 best stocks for investors to buy now… and Broadcom was not one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you would have $630,099!*

Stock advisor provides investors with an easy-to-follow blueprint for success, including portfolio construction guidance, regular updates from analysts, and two new stock picks every month. The Stock advisor the service has more than four times return of the S&P 500 since 2002*.

See the 10 stocks »

*The stock advisor returns as of September 3, 2024

Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a board member of The Motley Fool. Daniel Foelber has no position in any of the listed stocks. The Motley Fool has positions in and recommends Adobe, Advanced Micro Devices, Meta Platforms, Microsoft and Nvidia. The Motley Fool recommends Broadcom and recommends the following options: long $395 January 2026 Microsoft calls and short $405 January 2026 Microsoft calls. The Motley Fool has a disclosure policy.

If I Could Buy Only One Non-Nvidia Chip Stock In September, This Would Be The Best Pick was originally published by The Motley Fool