Better Buy: Broadcom vs. Nvidia Stock

Nvidia (NASDAQ: NVDA) and Broadcom (NASDAQ: AVGO) are two of the premier artificial intelligence (AI) stocks. Each of them is growing rapidly and making a ton of money thanks to massive spending on AI infrastructure.

Each of them has its strengths, but which one is the better pick between the two? Let's take a look.

Image source: Getty Images.

Market share

As of right now, Nvidia has a massive market share lead over Broadcom, but that shouldn't be too much of a surprise. Nvidia's primary product is a graphics processing unit (GPU), which is meant for broad-purpose accelerated computing. Broadcom is involved in AI computing via its custom AI chip service. GPUs have been dominant from the start of the AI build-out, while custom AI chips are just starting to catch on.

During its last quarter, Broadcom's AI semiconductor division generated $8.4 billion in revenue. However, custom AI chips are just one product within that division, so we know that the actual custom AI chip revenue is less than that. During Nvidia's last quarter, its data center division produced $62.3 billion. Clearly, Nvidia owns the majority of the market right now, giving it the advantage in this category.

Winner: Nvidia

Growth outlook

Market share is more of a backward-looking metric, which isn't as useful as seeing how rapidly these two will grow over the next few years. Broadcom's custom AI chip business is booming, and its CEO believes that it will generate $100 billion or more in annual revenue by 2027. Wall Street backs up this analysis, and projects Broadcom's revenue will increase 63% this year and 52% next year.

Nvidia is still rapidly growing, and Wall Street estimates that it will experience 72% revenue growth this year, but 31% next year. So, Nvidia has the edge in 2026, but Broadcom gains it in 2027. The projected two-year growth rate for Nvidia is 124%, while Broadcom's is 147%. You can't go wrong with either company if it hits the growth projections, but Broadcom gets the edge here.

Winner: Broadcom

Valuation

It doesn't do investors a lot of good to buy either Broadcom or Nvidia if they pay the wrong price for the stock. There are plenty of rapidly growing AI stocks out there that trade at far too high a price tag to invest in. However, Broadcom and Nvidia don't fall into that trap.

Valuing each stock using the forward price-to-earnings ratio is the best way, as it accounts for the massive growth each company is expected to undergo this fiscal year. Additionally, I'll also be looking at next fiscal year's forward earnings because we're not just taking a one-year outlook for these two.

AVGO PE Ratio (Forward) data by YCharts

At 35 times forward earnings, Broadcom isn't a cheap stock by any stretch. However, I think this premium valuation showcases the market's enthusiasm for a new competitor in the AI arena outside of Nvidia. It also shows the market's confidence that Broadcom's custom AI chip business will become a major player and challenge Nvidia's dominance.

At 24 times forward earnings, Nvidia's stock is substantially cheaper. With the S&P 500 trading at 21.6 times forward earnings, it's also not a ton more expensive than the broader market despite its solid positioning and rapid growth rate.

When you look past this year into next, Nvidia's stock looks especially cheap, with Broadcom's falling to a more market-average valuation. This shows that the market hasn't priced in any outsized growth after 2027, which is a good thing for investors. This means if you can maintain a three- to five-year outlook on these stocks and each company delivers rapid growth in 2028, then there is a ton of upside left for both.

Winner: Nvidia

Although Nvidia may take the cake in the valuation department, giving it a two-to-one victory, I don't think you can go wrong with either AI stock. Each looks like a phenomenal investment opportunity right now.

Keithen Drury has positions in Broadcom and Nvidia. The Motley Fool has positions in and recommends Broadcom and Nvidia. The Motley Fool has a disclosure policy.