What Is One of the Best Chip Stocks to Own for the Next 5 Years?

Key Points

• The AI chip market is expected to grow significantly by 2030.

• Broadcom is well positioned to capture $120 billion of revenue from AI demand alone in the next five years.

• 10 stocks we like better than Broadcom ›

The market for semiconductors is red-hot as investment continues to pour into data centers for artificial intelligence (AI). IDTechEx expects the market for AI chips to exceed $400 billion by 2030.

While graphics processing unit (GPU) leader Nvidia is a popular pick, investors should also consider Broadcom (NASDAQ: AVGO).

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Why Broadcom stock is a long-term buy

One issue for Nvidia is that its chips carry a high cost of ownership. They are the most powerful chips in the world, but they are also power-hungry and expensive. There is growing demand for more affordable chips, which are not as powerful as Nvidia's but are well suited to specific tasks, and that's where Broadcom comes in.

Broadcom expects its AI revenue to reach $120 billion by 2030, up from $20 billion this year. For perspective, its total revenue is $60 billion on a trailing-12-month basis.

Beyond chips, Broadcom also offers advanced networking solutions that allow chips to handle massive data flow for AI training workloads. As CEO Hock Tan recently said at a Goldman Sachs conference, "The network becomes the computer," not just the chip.

Broadcom's offering of specialized AI chips, or XPUs, and networking solutions position the company to meet demand for more intensive compute power. Its total revenue grew 22% year over year last quarter, while AI revenue specifically grew 63%, making up roughly a third of the business.

Broadcom has a long history of delivering operating excellence. The stock is up 2,500% over the last 10 years. Its $120 billion AI revenue target reflects management's confidence in the demand trajectory for AI compute, and importantly, Broadcom's competitive differentiation in the market to capture that opportunity.

Should you invest $1,000 in Broadcom right now?

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John Ballard has positions in Nvidia. The Motley Fool has positions in and recommends Goldman Sachs Group and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.