Could This Chip Stock Be the Best Way to Play the AI Infrastructure Buildout?

As the artificial intelligence (AI) market expands, more companies are upgrading their data centers to handle the skyrocketing usage of AI applications. According to Fortune Business Insights, the global AI infrastructure market will expand at a CAGR of 29.1% from 2025 to 2032.

What's the best chip play on the AI infrastructure boom?

One of the simplest ways to profit from that secular boom is through Broadcom (NASDAQ: AVGO), which produces custom application-specific integrated circuits (ASICs) for processing AI tasks. When installed at scale, these chips can process AI inference tasks at a more cost-efficient rate than Nvidia's (NASDAQ: NVDA) data center GPUs.

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Many hyperscalers -- including Alphabet's Google and Meta Platforms -- are installing Broadcom's custom AI accelerators to reduce their dependence on Nvidia's data center GPUs. Broadcom also bundles those chips with its own networking switches, optical equipment, and infrastructure software to help those tech giants efficiently expand their data centers.

In fiscal 2025 (which ended last November), Broadcom's AI chip revenue rose 65% to $20 billion, accounting for 31% of its top line and offsetting the slower growth of its non-AI chips and infrastructure software business. From fiscal 2025 to fiscal 2028, analysts expect its revenue and earnings per share (EPS) to grow at CAGRs of 38% and 47%, respectively, as the AI market expands and its non-AI businesses stabilize in a warmer macro environment.

What are its upcoming catalysts?

Broadcom expects to generate $60 billion to $90 billion in annualized AI chip revenues by the end of fiscal 2027, with most of that growth coming from just three hyperscale customers. It will also sell more networking and optical chips for the broader AI market. At the same time, the stable growth of its infrastructure software business will offset the cyclical choppiness of its chipmaking business.

Over the past decade, Broadcom has acquired numerous companies -- including CA Technologies, Symantec's enterprise security division, and the cloud software giant VMware -- to diversify its business. It will likely continue to make bold acquisitions for the foreseeable future.

Broadcom's stock looks reasonably valued at 30 times next year's earnings, and it still has plenty of irons in the fire. It's not attracting as much attention as Nvidia, which generates most of its revenue from its AI data center GPUs. Still, it's a more diversified way to profit from the growth of the AI infrastructure market. Its forward dividend yield of 0.8% won't impress income investors, but its low payout ratio of 49% gives it plenty of room for future dividend hikes.

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