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Prediction: This Artificial Intelligence (AI) Stock Could Be the Next $2 Trillion Giant
The Motley Foolยท2025-10-19 09:15

Core Insights - Broadcom's recent partnership with OpenAI positions it competitively alongside Nvidia in the AI sector, with the potential for significant market share growth [1][7] - Broadcom's current valuation is approximately $1.7 trillion, with a potential to reach $2 trillion if it continues to capture market share effectively [2][13] Company Overview - Broadcom has a diverse business portfolio that includes virtual desktop software, mainframe hardware, and cybersecurity, in addition to its AI initiatives [3] - The company reported $5.2 billion in AI revenue for fiscal Q3 2025, contributing to an overall revenue of $16 billion [3] AI Revenue and Product Offering - Broadcom's AI revenue is derived from connectivity switches and custom AI accelerators, known as XPUs, which are tailored to specific workloads [4][5] - The demand for Broadcom's XPUs is expected to rise as companies establish their AI workloads, contrasting with the more general-purpose design of Nvidia's GPUs [5][6] Market Position and Client Base - Currently, Broadcom supplies XPUs to five clients, with OpenAI being a significant new addition, planning to purchase 10 gigawatts of computing power [6][7] - This deal with OpenAI is larger than its agreements with AMD and matches its deal with Nvidia, enhancing Broadcom's visibility in the tech sector [6][7] Valuation and Growth Potential - Broadcom's stock carries a premium valuation, with a forward price-to-earnings ratio of 53, compared to Nvidia's 42 [8][10] - Despite the high valuation, Broadcom's AI-related revenue is growing at a rate of 63%, indicating strong growth potential [10][12] - Sustained earnings growth will be necessary for Broadcom to justify its current share price and achieve a market cap exceeding $2 trillion [12][13]