3 Reasons to Buy Broadcom Stock Like There’s No Tomorrow

Investing in artificial intelligence might seem a little wild right now. So much is changing, and many tech companies that weren’t previously in the AI ​​space have turned to the market (or at least tried to).

But there is one company that is apparently making the right moves in AI right now, benefiting from a unique niche in the market, and has the potential to continue using AI for years to come.

Here’s why Broadcom (AVGO 2.20%) could be a great addition to your portfolio.

1. Enter a massive AI market

Everyone who watched at home knows this Nvidia is the leader in AI graphics processing chips. However, within the broader AI chip market, there are niches, including application-specific integrated circuits (ASICs), that are available.

This is where Broadcom has focused its attention lately. The company already makes high-end ASICs used by companies that need general-purpose AI chips (think big tech companies like Alphabet and Meta), and is attracting a growing list of customers in an expanding market.

Because of Broadcom’s early moves in this space, JP Morgan estimates that the company’s custom AI chips have a total addressable market of $150 billion over the next four to five years.

2. Customers with AI chips keep coming back

Broadcom doesn’t just expect the large total addressable market to help drive revenue one day; already benefits from it. Sales of the company’s AI-focused chips tripled in the second quarter to $3.1 billion.

Not only was that phenomenal year-over-year growth, but given that total revenue in the quarter was $13.1 billion, Broadcom’s AI sales accounted for 24% of the company’s sales in the quarter.

Chip customers keep coming back to Broadcom, and CEO Hock Tan said on the earnings call that “customers continue to expand and expand their AI clusters” and that demand for custom AI accelerator continues to grow.

Growing demand for its artificial intelligence products prompted Broadcom’s management to raise its 2024 AI revenue estimates to $12 billion from the previous $11 billion.

Image source: Getty Images.

3. Its stock is cheaper than some rivals

Of course, Broadcom stock is not cheap. But compared to Nvidia and even AMDit’s a bit cheaper.

Broadcom’s current P/E ratio is 27, while AMD’s is 28, and Nvidia’s P/E is 42. For investors looking for a better deal than other AI chip plays, Broadcom is at as good as you is going to get.

Broadcom’s share price fell after the company reported its third-quarter results, as guidance for the fourth quarter came in slightly below analysts’ estimates. With shares down about 6% over the past three months, now might be a good time to buy shares. Keep in mind that AI stocks can be volatile, so expect some price fluctuations along the way.