Broadcom Builds Custom Chips for Google, Meta, Anthropic, and OpenAI. At 25 Times Forward Earnings, It's the Cheapest Mega-Cap AI Stock Nobody Talks About.

Broadcom (NASDAQ: AVGO) is often overlooked in discussions about the AI market, which tend to focus on Nvidia's (NASDAQ: NVDA) data center GPUs. However, Broadcom is also one of the fastest-growing chipmakers in the AI market.

Unlike Nvidia, which produces general-purpose GPUs for training AI algorithms, Broadcom builds custom application-specific integrated circuits (ASICs) for accelerating AI tasks. At scale, these custom AI accelerators can be more cost-effective than Nvidia's data center GPUs.

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That's why AI giants like Alphabet's Google, Meta Platforms, OpenAI, and Anthropic have all been buying Broadcom's AI chips. Let's see how much larger Broadcom's AI business could grow -- and why it's still a great buy.

How rapidly is Broadcom's AI business growing?

In fiscal 2025 (which ended last November), Broadcom's AI chip sales surged 65% to $20 billion, accounting for 31% of its top line. It expects that figure to rise to at least $100 billion in fiscal 2027, accounting for more than 58% of its projected revenue.

Broadcom's hyperscale customers should ramp up their chip purchases as the AI market expands. By installing more of those custom ASICs, they can reduce their infrastructure costs and curb their long-term dependence on Nvidia. While its ASICs aren't as flexible as Nvidia's GPUs for training purposes, they're well-suited for specific inference tasks.

Broadcom also sells a broad range of non-AI chips for mobile, data center, networking, wireless, storage, and industrial applications, as well as infrastructure and security software. Those businesses aren't growing as rapidly as its AI chip business, but it can bundle its products together to lock in its customers and widen its moat across multiple markets.

Why is Broadcom still a great investment?

From fiscal 2025 to fiscal 2028, analysts expect Broadcom's revenue and EPS to grow at CAGRs of 53% and 66%, respectively. Yet it still trades at just 25 times next year's earnings -- making it one of the market's cheapest mega-cap AI stocks relative to its growth rate.

Nvidia -- which is expected to grow both its revenue and EPS at a 46% CAGR from fiscal 2026 (which ended this January) and fiscal 2029 -- trades at 16 times next year's earnings. Nvidia trades at a lower multiple, but it's growth rates -- while impressive -- are still lower.

Broadcom is even cheaper relative to its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) -- which excludes all the near-term noise from its latest acquisitions. With an enterprise value of $1.98 trillion, it trades at 16 times next year's adjusted EBITDA. Therefore, it's still a great time to buy Broadcom as a long-term play on the booming AI market.

Leo Sun has positions in Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Broadcom, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.