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While Nvidia’s GPUs helped power the AI boom, priorities have begun to shift.
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Data centers and other hyperscale computer users are looking to integrate more economical choices.
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Broadcom’s ASICs are fueling rapid growth, and the stock is attractively priced.
The widespread adoption of ChatGPT in early 2023 heralded the wave of generative artificial intelligence (AI) to come. These next-generation AI models were significantly more useful than their predecessors but required a great deal more computational horsepower. Data centers and cloud providers — where most AI resides — scrambled to obtain the best AI chips money could buy.
This fueled a growth spurt for Nvidia. Its graphics processing units (GPUs), originally designed to generate lifelike images in video games, proved equally adept at moving data through the ether at lightning speeds.
However, priorities have begun to shift, opening the door for alternative solutions. While Nvidia will likely continue to dominate the data center GPU space, the current focus on energy-efficient alternatives suggests that Broadcom (NASDAQ: AVGO) represents a second chance for AI investors.
GPUs, while powerful, consume a great deal of energy. Large-scale AI users are increasingly focusing on more economical ways to power AI. That’s where Broadcom comes in. The company’s application-specific integrated circuits (ASICs) can be customized to be much more efficient for specific computing tasks, resulting in energy savings and lower costs.
In the fourth quarter, Broadcom delivered record revenue of $18 billion, up 28% year over year, fueling adjusted earnings per share (EPS) of $1.95, an increase of 37%. The results were driven by strong demand for its AI semiconductors, as revenue grew 74% year over year to $6.5 billion. That accelerating AI revenue growth is expected to continue, as the company is guiding for AI-centric sales to soar 104% to $8.2 billion.
Even as some providers are seeing slowing AI growth, Broadcom’s growth and its backlog are accelerating. During the Q4 earnings call, CEO Hock Tan said, “We have never seen bookings of the nature like what we have seen over the past three months.” The company’s consolidated backlog grew 47% to a record $162 billion, up from $110 billion in Q3. Broadcom expects to earn this as revenue over the next 18 months, suggesting revenue growth will vault higher. Moreover, Tan left no doubt as to the company’s biggest growth driver, saying, “We expect AI revenue to continue to accelerate and drive most of our growth.”
