Considering the surge of over 400% in the past five years, should you consider neglecting Nvidia and opt for investing in this notable AI stock that split, instead?
Nvidia (NVDA) has proven to be an early leader in the artificial intelligence (AI) revolution, reporting substantial earnings growth in recent quarters and vowing to continue innovating to fuel expansion. This growth has been reflected in the stock's performance, with shares surging over 190% this year, making Nvidia the best performer in the Dow Jones Industrial Average. Nvidia was even recently invited to join this elite group.
However, after these significant gains, one might question if Nvidia remains the foremost AI player, or if investors should explore another growth opportunity. A contender that has drawn attention lately is a company that, like Nvidia, underwent a stock split this year as its share price skyrocketed. Despite this, the company still carries a reasonable valuation and may have significant growth potential. Should this stock be preferred over tech giant Nvidia? Let's delve into the details.
A prominent networking entity
Which promising AI player am I referring to here? A corporation renowned for networking - it offers thousands of products used across various locations, from data centers to your smartphone. Over 99% of all internet traffic is transmitted via this company's technology. I'm talking about Broadcom (AVGO). Broadcom has demonstrated a history of earnings growth, and in recent times, two potential growth drivers have emerged: AI and Broadcom's acquisition of cloud company VMware.
Both of these ventures contributed to Broadcom's revenue growth by 47% in the latest quarter, surpassing $13 billion. Broadcom credits the surge in demand from cloud service providers as they expand their operations, and points to the growing interest in AI networking and custom AI accelerators from Broadcom. In the recent quarter, the company reported that custom AI accelerator revenue tripled, Ethernet switching quadrupled, and PCI Express switches doubled.
Due to this momentum, Broadcom now anticipates full-year AI revenue of $12 billion, an increase from an earlier estimate of about $11 billion.
It's worth noting that we may be in the beginnings of this AI demand, as data centers update their existing systems to accommodate accelerated computing. Nvidia's CEO, Jensen Huang, has estimated that $1 trillion in outdated computing systems exist today and need to be updated within the coming years. Unquestionably, this could benefit Broadcom.
VMware's progress
Regarding VMware, Broadcom showcased its VMware Cloud Foundation at a recent conference in Las Vegas - the product is a complete software suite that virtualizes a data center and creates a private cloud for the customer. Sales of this product aided the VMware platform in achieving an annualized booking value of $2.5 billion during the quarter, marking an increase of over 30% compared to the previous quarter.
When Broadcom acquired VMware last year, the company aimed to reach an adjusted EBITDA of $8.5 billion within three years. Currently, Broadcom asserts that it is on track to meet or surpass that goal during the 2025 fiscal year.
As a result, Broadcom may be on the brink of a new wave of growth, one that could persist for an extended period. The company's stock has climbed more than 460% over the past five years and even surpassed $1,000 earlier this year. Like Nvidia, Broadcom launched a 10-for-1 stock split to make the stock more accessible for a wider range of investors. This initiative, executed in July, also indicates Broadcom's optimism about the stock's future potential for further growth.
Should you abandon Nvidia and opt for this company now? While Nvidia remains a solid AI investment, an examination of valuation reveals that Broadcom presents a compelling opportunity for investors seeking a potential AI champion. The stock is currently trading at 28 times forward earnings estimates, compared to Nvidia's 47.
In conclusion, both companies could possess substantial value for technology portfolios. However, at the moment, Broadcom appears to be an attractive buy based on its reasonable valuation.
In the context of exploring alternative growth opportunities beyond Nvidia, Broadcom could be an appealing choice due to its substantial earnings growth and focus on AI and networking. The company's stock split this year, coupled with its reasonable valuation compared to Nvidia's, suggests potential investment opportunities in this AI champion.
Considering Broadcom's recent financial performance, its stock has surged more than 460% over the past five years, even surpassing $1,000 earlier this year. This growth can be attributed to Broadcom's ventures in AI and its acquisition of cloud company VMware, which has contributed significantly to its revenue growth.
