AMD vs. Broadcom: The AI Chip Race Is Big Enough for Both. Here's the Better Buy.

Nvidia remains the AI infrastructure market leader, and the chipmaker isn't going to give up its crown anytime soon. However, this is a large and rapidly growing market that is big enough for more than one winner. Two other AI semiconductor stocks that look poised to perform well over the coming years are Advanced Micro Devices (NASDAQ: AMD) and Broadcom (NASDAQ: AVGO).

While I like both stocks, I think Broadcom is the better buy. Let's take a closer look at both to find out why.

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Advanced Micro Devices

AMD has long played second fiddle to Nvidia in AI. The reason is that most foundational AI code was written for Nvidia's CUDA software platform and optimized for its graphics processing units (GPUs), while AMD's ROCm software greatly lagged. This made Nvidia's GPUs the standard for training AI models, and essentially kept AMD out of the market.

However, AMD and its GPUs are much better positioned for the inference market. It has greatly improved its software platform over the past few years, and inference is much less technically demanding and much more about fast memory access. AMD's chiplet design allows its GPUs to be packaged with more high bandwidth memory (HBM), making them more suitable for inference.

On top of that, the company has acquired memory optimization company MEXT and inference chipmaker Taalas to help differentiate its offering. It's also formed a partnership with Cerebras to offer a combined system using Cerebras' high-end chips for the decode phase of inference and its GPUs for the pre-fill phase.

AMD has signed two large partnerships with OpenAI and Meta Platforms that should generate around $100 billion each in revenue over the next few years. It also has GPU inference deals with Anthropic and Microsoft in place. In addition to its GPU opportunity, AMD is also a leader in server central processing units (CPUs). This market is growing rapidly with the rise of agentic AI, and it is projected to be worth $220 billion over the next few years.

Broadcom

With hyperscalers (large data center owners) looking to save costs on their AI infrastructure spending, they have been increasingly turning toward Broadcom to help them develop custom AI chips. The company is a leader in ASIC (application-specific integrated circuit) technology, providing essential IP and services to turn a customer's design into physical chips that can be manufactured at scale.

The company helped Alphabet develop its Tensor Processing Units (TPUs), and these chips will be its biggest growth driver in the years ahead. Alphabet, of course, will continue to be a significant customer, while Anthropic will actually become its largest buyer following the three companies agreeing to a TPU partnership earlier this year.

Broadcom has also helped Meta and OpenAI develop their own custom chips and will start to benefit as these newer programs begin to ramp up. Broadcom said it sees a clear path for its AI revenue to double in fiscal 2027 to $115 billion, then double again in fiscal 2028 to $230 billion.

Why Broadcom is the better stock to buy

I like both AMD's and Broadcom's stocks, and I own both. Both companies are set to see strong growth in the coming years. Analysts project AMD will increase its revenue by 73% in 2027 and 38% in 2028, while Broadcom will grow its fiscal 2027 (ending October) revenue by 64% and its fiscal 2028 revenue by 57%.

However, I think Broadcom is currently the better buy of the two, largely due to valuation. It trades at a forward P/E of around 18 times fiscal 2027 (ending October 2027) analyst estimates versus 35 times for AMD based on the 2027 calendar-year consensus. The company has also projected earnings per share (EPS) over $30 in fiscal 2028, which would be below an 11.5x multiple. That's just way too cheap and makes Broadcom a top AI stock to buy.

Geoffrey Seiler has positions in Advanced Micro Devices, Alphabet, Broadcom, and Meta Platforms. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Broadcom, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.