Are Broadcom's Custom AI Chips the Key to the Future of AI?

It's no secret that artificial intelligence (AI) requires a lot of computing power. Since the build-out began in 2023, Nvidia has dominated the market with its best-in-class GPUs. However, these computing units are expensive and aren't always used to their maximum potential. Every AI company is looking at ways to stretch its spending as far as it will go without sacrificing performance.

As a result, more and more companies are starting to work with Broadcom (NASDAQ: AVGO). Broadcom does a lot of things as a company, but what investors are most excited about are its custom AI chips, known as ASICs (application-specific integrated circuits). Are these the future of AI? Let's take a look.

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Broadcom just announced another major client

Broadcom's custom AI chips thrive in many applications, but they have to be specifically designed for the workloads they encounter (or the workloads must be designed for the chips). This is a key point, because they aren't as flexible as a GPU from Nvidia. With how far AI technology has progressed, an increasing number of companies are comfortable using these specialized chips because they know what the workloads will be like.

The best example of a Broadcom custom AI chip is the Tensor Processing Unit (TPU) that it collaborated with Google to make. The TPU has been Google's secret weapon in delivering some of the lowest-cost performance of any AI model on the market. However, instead of using it solely in-house, Google is starting to offer it for sale to other companies.

One major company that just signed up to use TPUs is Anthropic, which recently announced it would use TPUs starting in 2027. This caused Broadcom's stock price to soar, but Anthropic isn't the only company getting a Broadcom product. Another major AI start-up, OpenAI, is also working with Broadcom to design a custom chip for its workloads.

All of this adds up to a booming business segment for Broadcom. During its past quarter, the division in which these chips are accounted for generated $8.4 billion in revenue. That includes other products, so the total amount is likely much less than that. However, by the end of 2027, Broadcom expects custom AI chip revenue to exceed $100 billion annually. That's monster growth from this division, and I think it makes Broadcom one of the best stocks to invest in as the AI computing landscape shifts.

Does this mean you need to sell your Nvidia shares? Absolutely not. Nvidia is still a great company in its own right, but investors shouldn't be blind to others that are also delivering impressive results.

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