Nvidia‘s volatility continues to have rippling effects throughout the technology sector and the broader market. In August, Nvidia stock was as little as $90.69 a share and as high as $131.26 a share — representing a large range for such a brief time frame.
Nvidia reported earnings on Aug. 28, delivering parabolic growth and higher-than-expected guidance. And yet, the stock sold off. Nvidia stands out as a solid buy within the chip space for investors that may endure volatility.
Nonetheless, one other stock value considering now could be infrastructure software and solutions company Broadcom (NASDAQ: AVGO). Here’s why Broadcom is a singular opportunity within the semiconductor industry and will appeal to growth, income, and value investors alike.
AI investment opportunities
There are several other ways to take a position in artificial intelligence (AI).
It wasn’t way back that Nvidia’s largest segment was graphics. But now, compute and networking (led by data centers) make up the overwhelming majority of revenue and operating income. Nvidia makes graphics processing units (GPUs) that underpin its various AI computing platforms that may process high amounts of complex data and workloads.
There are also firms like Meta Platforms, which is a serious Nvidia customer. Meta leverages AI throughout its business to assist customers improve the standard of their content creation, make content faster, optimize its search algorithm to maintain users engaged, and more. Likewise, Microsoft‘s AI solutions, like Copilot for Microsoft 365, GitHub Copilot, and Azure AI for cloud infrastructure, are software upgrades that improve efficiency and save time.
Broadcom has a significantly different approach to AI than these firms. It makes a wide range 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 instrumental in global connectivity.
The corporate 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 do not have the range of functionality of GPUs, but they’re highly effective solutions for specific tasks. Broadcom has been making ASIC solutions for greater than three many years.
Today, it makes custom silicon for clients who have to handle complex AI workloads. Broadcom leverages its mental property portfolio to create these custom ASIC AI accelerators. On this vein, they’re more an extension of the corporate’s core competencies quite than entirely recent products.
Along with AI accelerators, Broadcom has seen a boom in Ethernet switches to support AI workloads. Broadcom has been doing Ethernet networking for over 25 years, capturing market share in cloud-scale networking, routing, and AI. Ethernet adapters are needed to fulfill the demand for higher data transfer speeds in high-stress network environments. High data volumes needed to coach large language models require greater server clusters and more connectivity.
In sum, Broadcom’s products complement GPUs and improve their performance, which allows customers to construct greater GPU clusters.
Broadcom is delivering results and growing its dividend
Broadcom’s results and guidance show that AI helps speed up growth. In its June quarter, Broadcom said it expects to generate greater than $11 billion in revenue this yr from AI chip sales — representing over 20% of total revenue. Second-quarter 2024 revenue was up 43% yr over yr because of its November 2023 acquisition of VMware for $86.3 billion. VMware is a play on cloud computing and enterprise software.
Taking out the contribution from VMware, Broadcom’s sales growth has been somewhat disappointing — mainly on account of cyclical weakness in semiconductor revenue. Broadcom is transitioning all VMware products to a subscription licensing model, which should provide Broadcom a gentle income stream and help offset a few of the cyclical downturns in its hardware business.
One other unique quality that separates Broadcom from many other chip stocks is its dividend, which has nearly doubled within the last five years and currently yields 1.4%. While the yield doesn’t sound high, it’s greater than the S&P 500 index’s 1.2% yield at once.
Broadcom is a balanced buy
Although Broadcom has plenty of the way to monetize AI, it is not a make-or-break bet on the theme. This 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 sports an inexpensive valuation. Its forward price-to-earnings (P/E) ratio is 32.4 — which is around similar to that of software firms like Microsoft and Adobe and cheaper than Nvidia’s 37.3 or Advanced Micro Devices‘ 41.7.
Add all of it up, and there is lots to love about Broadcom as a worthy chip stock to purchase in September and hold for at the least three to 5 years.
Do you have to invest $1,000 in Broadcom at once?
Before you purchase stock in Broadcom, consider this:
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Idiot’s board of directors. Daniel Foelber has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends Adobe, Advanced Micro Devices, Meta Platforms, Microsoft, and Nvidia. The Motley Idiot recommends Broadcom and recommends the next options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Idiot has a disclosure policy.
If I Could Buy Only one Chip Stock Other Than Nvidia in September, This Would Be My Top Alternative was originally published by The Motley Idiot