This Under-the-Radar AI Chip Leader Just Became a No-Brainer Buy This Week

When you hear about artificial intelligence (AI) chips, your mind instantly shifts to Nvidia or maybe even Advanced Micro Devices. These are two rock-solid options, but there is another that I think should be top of mind: Broadcom (NASDAQ: AVGO), a major player in the AI chip industry, even if most people don't know anything about the company. Fortunately for investors, its stock is now on sale and looks to be a great opportunity.

Broadcom is now about 20% down from its all-time high, and with major chip demand coming in the next few years, its stock is sure to skyrocket back to new all-time highs.

Image source: Getty Images.

Broadcom is taking a different approach to AI chips

Companies like Nvidia and AMD champion their graphics processing units (GPUs) to clients as the best chips for AI clusters. GPUs can handle a wide variety of inputs and are very flexible for the tasks assigned to them.

But many AI companies have their training and inference workflows streamlined to a very precise formula, so they don't need the flexibility of a GPU. In fact, most of its features are wasted. Instead, companies are starting to turn to companies like Broadcom to help them design application-specific integrated circuits (ASICs). They have been around for a long time and are deployed in a variety of settings, but their biggest use case yet will be AI computing.

Broadcom helps its clients design and fabricate their custom chips, and the results have been incredible so far. The best example of a Broadcom-designed custom AI chip is the Tensor Processing Unit (TPU) from Alphabet. This chip has been so successful that Alphabet is selling it to external clients. Other core clients include OpenAI and Anthropic, whose custom AI chip production will really ramp up in 2027.

This will lead to huge growth, and Broadcom expects its AI semiconductor revenue to top $100 billion in fiscal year 2027. The semiconductor division is only one part of the company, and Wall Street analysts expect revenue to reach $172 billion by the end of fiscal 2027. Over the past 12 months, the company has generated $75 billion, so it's projected to more than double its revenue by the end of next year.

AVGO Revenue (TTM) data by YCharts; TTM = trailing 12 months.

With Broadcom going on sale and having a strong offering in the AI realm, it looks like a no-brainer buy after the sell-off. The stock doesn't do this often, and it's time for investors to take advantage of the weakness and buy the stock today.

Keithen Drury has positions in Alphabet, Broadcom, and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Broadcom, and Nvidia. The Motley Fool has a disclosure policy.