Could Broadcom double Nvidia’s performance as the premiere artificial intelligence (AI) stock?

Nvidia has received considerable attention as the market’s premiere artificial intelligence (AI) stock. This is for good reason, as its graphics processing units (GPUs) are in high demand to provide the computing power needed to train these new generative AI models.

However, this cannot be done with just one or two GPUs. Instead, companies often use thousands of these devices linked together to speed up training time. This connectivity portion is the place Broadcom (AVGO -0.79%) enters and will also be a big beneficiary of the AI ​​movement.

So could Broadcom duplicate Nvidia’s massive growth?

Broadcom’s product line is broad

Broadcom is a much broader company than Nvidia because it not only sells these switches, but also has application-specific integrated circuits (ASICs). They are (you guessed it) designed to handle a very specific task. AlphabetIts Tensor Processing Unit (TPU) is a chip that can outperform Nvidia GPUs when an AI workload is configured correctly, and is an example of an ASIC that Broadcom helped create. There are many other examples of ASICs designed by Broadcom that will compete with Nvidia GPUs, and this represents a significant growth opportunity.

If these GPU alternatives do arrive, they could provide significant growth for Broadcom. Although, management does not believe that these applications will ever compete with Nvidia GPUs.

Thanks to its big VMware acquisition, Broadcom also has a software wing that ranges from cybersecurity to virtual desktops. It also has mainframe software, which is critical when companies greatly expand their computing capacity.

If it sounds like Broadcom is doing a lot, that’s because it is. This may be a problem for Broadcom in the long run as it is not focused on any one area. So if its connectivity switch business explodes while the software side struggles, the results may not look as good as Nvidia’s, which focuses squarely on its core product. But this can also be a benefit, as growth should be fairly steady with fewer boom and bust cycles like Nvidia experiences.

If you want to capitalize on a business with a big AI advantage, but without the volatility of the business, Broadcom could be a great choice. However, don’t expect the same level of performance that Nvidia offered investors.

But is the stock a buy at today’s prices?

Stock is not cheap

Since Broadcom is going through a period of transformation, the best way to value it is to use the forward price-to-earnings (P/E) ratio.

AVGO PE Ratio data (before) by YCharts. PE ratio = price-earnings ratio.

At 34 times forward earnings, the stock isn’t cheap. However, with revenue up 43% year-over-year in Q2, investors will give it a pass. One thing to note, however, is that its acquisition of VMware accounted for a large part of that growth. If you subtract, revenue was up 12% year-over-year. That’s solid growth, but perhaps not enough to justify its share price.

However, the company’s revenue is slated to grow significantly over the next few years.

AVGO EPS estimates for current fiscal year data by YCharts. EPS = earnings per share.

That growth should drive the stock higher and give investors ample upside to pay the stock’s premium today. While Broadcom won’t match Nvidia’s performance anytime soon, it has strong tailwinds in its favor and should see strong growth thanks to AI. It’s a solid stock to buy in the market, especially for someone looking for a little more stable business.