These Wall Street analysts see significant upside in artificial intelligence stocks Nvidia and Broadcom.
Semiconductor Company Nvidia (NVDA -0.36%) completed a 10-for-1 stock split in June, and co-chipmaker Broadcom (AVGO 1.19%) has a 10-for-1 stock split planned for July. Savvy investors have gravitated toward both stocks. A company’s stock price tends to grow about twice as fast as S&P 500 (^GSPC -0.41%) during the year following a stock split announcement.
Indeed, some Wall Street analysts see significant upside in Nvidia and Broadcom.
- Beth Kendig at the I/O Fund expects Nvidia to reach a market capitalization of $10 trillion by 2030. This forecast implies about 230% growth from the current market capitalization of $3 trillion.
- Joseph Moore in Morgan Stanley has outlined a casual price target that values ​​Broadcom at $2,292 per share through June 2025. That will change to $229.20 per share after the stock split. Either way, this forecast implies a 70% upside from the current price of $1,605 per share.
Here’s what investors need to know about Nvidia and Broadcom.
Nvidia: Market leader in data center GPUs and AI chips
Nvidia graphics processing units (GPUs) are the gold standard in rendering realistic computer graphics and accelerating complex data center workloads such as artificial intelligence (AI) applications. Nvidia also offers data center-adjacent hardware, such as central processing units (CPUs) and networking hardware, as well as software and subscription services that support graphics and AI workflows.
Nvidia holds more than 95% market share in workstation graphics processors and more than 90% market share in data center GPUs. Additionally, regarding AI specifically, the Wall Street Journal recently reported that “Nvidia’s chips support all of the most advanced AI systems, giving the company an estimated market share of more than 80% .Looking forward, Nvidia is unlikely to lose its leadership position anytime soon because it has a stable competitive advantage in CUDA.
Nvidia CUDA is a programming model that allows GPUs (originally designed for graphics applications) to accelerate all kinds of data center computing tasks. The CUDA ecosystem includes hundreds of software libraries (building blocks) that simplify model training and application development. No other chip maker has a comparable supporting software ecosystem. In other words, competitors not only have to overcome the superior performance of Nvidia hardware, but also the incredible convenience offered to developers by Nvidia software.
Nvidia reported successful financial results in the first quarter. Revenue rose 262% to $26 billion and non-GAAP net income rose 461% to $6.12 per diluted share. Nvidia is set to maintain that momentum as the AI ​​market grows. In fact, CFRA analyst Angelo Zino recently said that Nvidia “will be the most important company to our civilization over the next decade.”
Furthermore, rapid innovation should keep the company ahead of its peers. Nvidia Blackwell GPUs deliver four times faster AI training and 30 times faster AI inference compared to the previous generation Hopper. Rosenblatt analyst Han Mosesmann said recently, “The new Blackwell GPU platform, which will be ramping up later in 2024, is likely to be the most ambitious project Silicon Valley has ever seen.”
Wall Street expects Nvidia to grow earnings per share by 33% annually over the next three to five years. That makes the current valuation of 68 times adjusted earnings look a little expensive, but not unreasonably so. Investors should be prepared to pay a premium if they want to own this stock.
Personally, I’m skeptical about Nvidia reaching a $10 trillion market cap by 2030. I certainly believe it’s possible, but a lot of things will have to go right for the company. That said, I believe Nvidia will beat the S&P 500 over the next three to five years, so patient investors should consider buying a small position today.
Broadcom: The market leader in ASICs and networking chips
Broadcom divides its business into semiconductor solutions and infrastructure software. The company earns revenue from semiconductor solutions by developing chips for wired and wireless networking, data center storage and other end markets. Broadcom also develops application-specific integrated circuits (ASICs), purpose-built chips for specialized use cases such as artificial intelligence. Additionally, Broadcom earns infrastructure software revenue from cybersecurity, monitoring and virtualization products.
Broadcom is the leading ASIC provider with 35% of the market, while its closest competitor Marvell technology owns 12% of the market. It is also a leader in wireless networks and chips. This puts Broadcom in a good position because AI adoption is driving demand for ASICs and network chips. Analysts at Goldman Sachs He recently wrote, “Along with Nvidia, we see Broadcom as a critical piece to the continued building of AI infrastructure.”
Broadcom reported solid financial results in the second quarter, beating estimates on the top and bottom lines. Revenue rose 43% to $12.5 billion due to particularly strong demand for AI chips and virtualization software. Meanwhile, GAAP net income fell 46% to $4.42 per diluted share, but that was due to costs related to the VMware acquisition in 2023. Non-GAAP operating income rose 32% in the quarter both.
Broadcom is a hidden gem among AI stocks because Nvidia casts a long shadow. But its strong position in ASICs and networking chips should be a source of significant revenue growth in the coming years. Indeed, management expects AI chips to account for 25% of its semiconductor solutions revenue in 2025, up from 15% in 2023.
However, Wall Street expects the company to grow earnings per share by 17% annually over the next three to five years. That makes the current valuation of 69 times earnings look expensive, especially when the three-year average is 32 times earnings. To be fair, earnings could rise faster than expected depending on how the VMware integration progresses. But I plan to avoid the stock until the valuation looks more reasonable. To that end, I see little chance of a 70% return over the next 12 months.
Trevor Jennewine has positions in Nvidia. The Motley Fool has positions in and recommends Goldman Sachs Group and Nvidia. The Motley Fool recommends Broadcom and Marvell Technology. The Motley Fool has a disclosure policy.