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1 Top Artificial Intelligence (AI) Chip Stock to Buy Hand Over Fist Before It Jumps
AVGOBroadcom(AVGO) The Motley Fool·2025-03-13 07:18

Core Viewpoint - The artificial intelligence (AI) semiconductor sector has faced challenges in 2025, but Broadcom has outperformed expectations, showcasing strong results and potential for growth in AI-related revenue [1][2]. Company Performance - Broadcom's fiscal 2025 first-quarter results exceeded Wall Street's expectations, leading to an 8% increase in stock price the following day [2]. - Despite being down 20% year-to-date, Broadcom's stock is considered attractively valued for potential investors [2]. AI Market Demand - The demand for Broadcom's application-specific integrated circuits (ASICs) has surged due to the increasing need for AI training and inference, offering cost and performance advantages over traditional GPUs [3]. - Broadcom's revenue from AI chips and networking solutions reached 4.1billionlastquarter,markinga774.1 billion last quarter, marking a 77% increase year-over-year, driven by strong demand from cloud customers [4][5]. Strategic Partnerships - Broadcom is collaborating with three hyperscale cloud customers to develop custom AI processors, with a projected serviceable revenue opportunity of 60 billion to 90billionoverthenextthreeyears[7].−ThecompanyhasalsoengagedwithtwoadditionalhyperscalerstocreatecustomizedAIaccelerators,expandingitscustomerbaseandrevenuepotential[8].RevenueGrowthandMargins−AI−relatedrevenuecurrentlyaccountsforover2790 billion over the next three years [7]. - The company has also engaged with two additional hyperscalers to create customized AI accelerators, expanding its customer base and revenue potential [8]. Revenue Growth and Margins - AI-related revenue currently accounts for over 27% of Broadcom's total revenue, with expectations for this figure to rise as the market expands [9]. - The gross margin from Broadcom's semiconductor business increased by 70 basis points year-over-year, indicating improved profitability due to the growing AI segment [10]. Future Outlook - Analysts anticipate accelerated earnings growth for Broadcom, supported by the expanding AI business and its positive impact on margins [11]. - With a current trading multiple of 30 times forward earnings, Broadcom's stock price could potentially reach 274, representing a 48% increase from current levels [12][13].