Broadcom vs. Marvell Technology: 1 Critical Metric Decides the Better Custom AI Chip Stock

Broadcom (NASDAQ: AVGO) and Marvell Technology (NASDAQ: MRVL) are eerily similar companies. Both of them produce networking equipment for data centers, but they have also launched custom AI chip businesses with a few critical customers. Custom AI chips are likely to grow in popularity, as they can offer superior cost performance to traditional GPU-based training.

This primes both stocks to benefit as these units become more popular. But which one is the better buy? I think there's one metric that settles the debate.

Image source: Getty Images.

What are custom AI chips?

To date, most training and inference has been performed on graphics processing units (GPUs), mostly made by Nvidia (NASDAQ: NVDA). GPUs are incredible computing units, and are great for a wide variety of workloads. The amount of flexibility that Nvidia has designed into its computing unit is amazing, but if a GPU only sees one workload type during its whole service life, then this flexibility is wasted. GPUs are still necessary in the computing landscape, as there are several reasons why GPUs should still be utilized; however, custom AI chips could provide better performance in some areas.

Custom AI chips are known as ASICs, application-specific integrated circuits. ASICs are nothing new, but their application to AI is. By building a computing chip around a workload rather than the other way around, designers can optimize and make these products efficient and cost-effective. This leads to more computing power at a lower cost, often outperforming GPU-based computing.

The clients for custom AI chips are mostly AI hyperscalers that either operate a cloud computing business (like Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) or Amazon (NASDAQ: AMZN)) or AI firms that are building a ton of computing power internally to handle AI workloads, like OpenAI or Anthropic. These companies are either using custom AI chips internally or renting them out to clients, and are expected to ramp up purchasing of custom chips over the next few years.

Because none of these companies has expertise in designing or manufacturing computing units, Broadcom and Marvell are popular partners to help with that step. Broadcom's custom chip business is the larger of the two and boasts Alphabet, Meta Platforms (NASDAQ: META), OpenAI, and Anthropic as clients. Marvell has captured Amazon and Microsoft (NASDAQ: MSFT).

These are the major names, but there are others that also utilize Broadcom and Marvell's services as well. Which is the better buy of the two?

Broadcom is far cheaper

There is major growth expected in the custom AI chip space over the next few years, which makes looking at how the stocks are valued using next year's earnings projections a smart move. From this perspective, Broadcom is trading at about half the price Marvell is.

AVGO PE Ratio (Forward 1y) data by YCharts

This makes Broadcom the obviously cheaper stock to buy, but there's another thing in its favor: Broadcom is expected to grow faster. During fiscal year 2027, the average Wall Street analyst expects 64% revenue growth for Broadcom. For Marvell's next fiscal year, analysts estimate 45% growth.

Broadcom has a larger client list, is faster growing, and is priced more cheaply. There's not much of an argument to be made here regarding Broadcom versus Marvell. While Marvell could still be a successful investment, I think Broadcom makes the most sense, as its lower price tag looks like a pretty good bargain, especially considering how popular custom AI chips are becoming.

There's also a strong possibility that custom AI chips continue to grow in popularity beyond 2027, especially as they prove to be more cost-effective than GPUs. Amazon's custom AI chip, Trainium, is about 30% to 40% more cost-effective than GPU-based training (depending on what generation is compared). That kind of efficiency boost will become popular in the later stages of the AI buildout, setting up Marvell and Broadcom for great multiyear growth potential.

Keithen Drury has positions in Alphabet, Amazon, Broadcom, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Broadcom, Marvell Technology, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.