The AI Boom Is Entering A New Phase -- And Nvidia May Not Be The Biggest Winner

Nvidia (NASDAQ: NVDA), the world's largest producer of data center GPUs, has been one of the biggest beneficiaries of the AI boom. The world's top AI companies use its GPUs to train their large language models (LLMs), and it locks in its customers with its proprietary software.

From fiscal 2022 to fiscal 2026 (which ended this January), Nvidia's revenue and EPS grew at CAGRs of 68% and 89%, respectively. That's why its stock surged more than 1,000% over the past five years. It's still a great long-term AI play, but another tech giant might generate even more impressive gains over the next few years as the AI market enters a new phase.

Image source: Getty Images.

What new phase is the AI market entering?

Over the past few years, many AI companies have focused on training their algorithms by feeding them massive amounts of data. These training sessions, which can run for weeks to months, use large clusters of Nvidia's GPUs in data centers.

But today, inference -- or the act of using software to access that trained data -- is becoming the next big growth phase of the AI market. As hyperscalers try to reduce the high costs of running their AI models around the clock, they're shifting away from Nvidia's general-purpose GPUs toward specialized application-specific integrated circuits (ASICs).

Instead of being jacks-of-all-trades, ASICs are customized for specific tasks. At scale, these specialized chips can be more cost-efficient than Nvidia's GPUs for handling inference tasks. Therefore, Broadcom (NASDAQ: AVGO) -- which controls about 70% of the ASIC market -- will likely experience a major growth spurt as more AI companies ramp up their investments in inference-driven technologies.

Why could Broadcom be an even bigger winner than Nvidia?

Broadcom already produces custom ASICs for Alphabet's Google, Meta Platforms, OpenAI, and Anthropic. In fiscal 2025 (which ended last November), its AI chip sales soared 65% to $20 billion, accounting for 31% of its top line. It expects that figure to rise to $100 billion in fiscal 2027.

From fiscal 2025 to fiscal 2027, analysts expect Broadcom's revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to both grow at CAGRs of about 53%. Its soaring AI chip sales should offset slower sales of non-AI chips (including wireless, mobile, data center, storage, and industrial markets) and infrastructure software (which it increased its exposure to over the past decade via several major acquisitions).

Broadcom already has an enterprise value of $1.98 trillion, but it trades at just 16 times next year's adjusted EBITDA. That low valuation will attract more investors seeking the next big AI stock -- and Broadcom could be a better play on the inference market than Nvidia.

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