Broadcom vs. AMD: Which AI Chip Stock Is the Better Buy?

The AI chip trade has been one of the most profitable investment opportunities over the past decade, and the leaders continue to gain market share. Broadcom (NASDAQ: AVGO) and AMD (NASDAQ: AMD) have both outpaced the S&P 500 (SNPINDEX: ^GSPC) year to date.

These companies specialize in different products. While Broadcom makes most of its money from ASICs, which are custom-made chips for tech giants, AMD specializes in GPUs and CPUs.

Here's what investors should know when comparing both stocks.

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Both companies have been delivering exceptional results

It's not easy to choose between growth stocks like Broadcom and AMD, since both are gaining significant market share while strengthening their fundamentals. AMD delivered 50% year-over-year revenue growth in the second quarter (ended June 27), while Broadcom's sales were up by 48% year over year in its fiscal 2026 second quarter (ended May 3).

Although AMD has a slight edge, Broadcom's guidance suggests it will win in future quarters. AI semiconductor sales accounted for slightly less than half of Broadcom's revenue and more than doubled year over year. The ASICs leader anticipates its AI semiconductor revenue will more than triple year over year when it reports fiscal 2026 third-quarter results. Broadcom CFO Kirsten Spears told investors to expect 84% year-over-year revenue growth in that quarter.

Similarly, AMD more than doubled its data center revenue year over year, where its AI products are sold. That part of the business accounts for 58% of AMD's revenue, and its growth rate is expected to accelerate in the second half of the year. The midpoint of AMD's guidance implies 41% year-over-year revenue growth next quarter.

CPU demand may surge as the AI build-out reaches its next chapter

CPUs are the brains of AI infrastructure, on which GPUs rely to process and retain information. They have always been a key part of AI infrastructure, but the push to agentic AI is making CPUs even more important. It's getting to the point where there may need to be one CPU per GPU, whereas it's been one CPU per eight GPUs for training models.

Red Hat, an IBM company, stated that the ratio will change to four CPUs per GPU in certain agentic deployments. Hyperscalers investing in agentic AI will need to purchase many CPUs to meet modern ratios. While the 1-to-1 and 4-to-1 ratios don't have to be in favor of CPUs throughout AI data centers, those are the ratios for agentic AI builds.

This news benefits AMD in particular, since it also specializes in CPUs. Broadcom does not offer CPUs at this time, so it will miss this opportunity from a CPU perspective. Grand View Research projects a 46.2% CAGR for the enterprise agentic AI market, which bodes well for AMD.

Broadcom trades at a better valuation

Although both companies have compelling growth stories, valuations still matter. The gap between them is considerable. Broadcom trades at a 70 P/E ratio compared to AMD's 120 P/E ratio. Broadcom also trades at a 0.47 PEG ratio, while AMD trades at 1.01.

These metrics imply that Broadcom is the less risky stock at current levels. While AMD has a case for CPU expansion to accelerate revenue growth in the long run, Broadcom is still chugging along. Furthermore, Broadcom's guidance implied a much higher revenue growth rate than AMD's.

Broadcom even has a higher net profit margin than AMD. Its 42% net profit margin was more than twice AMD's 19.9%. Both stocks are compelling, and investors should monitor developments in rising CPU sales if they prefer AMD. However, Broadcom looks more promising at current levels.

Marc Guberti has positions in Broadcom. The Motley Fool has positions in and recommends Advanced Micro Devices, Broadcom, and International Business Machines. The Motley Fool has a disclosure policy.