Missed Out on Nvidia Stock’s Terrific Surge? Buy This Cheap Artificial Intelligence (AI) Stock That Could Jump Another 25% in the Next Year

Semiconductor stocks have been on fire over the past year as the sector received a nice boost from growing demand for artificial intelligence (AI) chips, which explains why shares of the giant lice or fleas Nvidia have jumped 216% over the past year.

Nvidia has a 92% share of the data center GPU (graphics processing unit) market, and this dominance has led to exceptional revenue and profit growth for the company in recent quarters. It could also lead to another year of solid growth for Nvidia, given the huge opportunities presented by AI chips.

According to a forecast from investment bank Raymond James, the market for chips powering generative AI applications could double in 2024. Given Nvidia's position in this market, this growth should translate into a huge increase in revenue : Third-party estimates predict the company will generate $76. billion dollars in data center revenue this year. That would be a substantial jump from the $44 billion in data center revenue Nvidia could have made in its 2024 fiscal year (which ended Jan. 31).

However, Nvidia isn't the only way to capitalize on the AI ​​chip market. J.P. Morgan analyst Harlan Sur believes the chipmaker Broadcom (AVGO -0.33%) may become the second largest supplier of AI semiconductor chips this year.

Broadcom could generate significant AI revenue this year

The JPMorgan analyst is overweight Broadcom stock with a price target of $1,550, more than 20% above current levels. According to Sur, the chipmaker could generate AI revenue of $8 billion to $9 billion in 2024 thanks to its dominant position in the custom chip market, particularly high-end application-specific integrated circuits (ASICs). deployed for AI workloads.

According to JPMorgan, Broadcom controls 35% of the high-end ASIC market. This puts him well ahead of second place Marvell Technology, which has a market share of 12%. Broadcom's strong position means it is well placed to make the most of a rapidly growing opportunity.

The high-end custom ASIC market was worth between $13 billion and $18 billion in 2023. This market is expected to see 20% annualized growth in the long term as more companies look to make AI chips personalized. The good news is that Broadcom has reportedly built a strong portfolio of customers for its custom chips, and closed two to three major deals last year.

Broadcom has helped design every generation of Google's tensor processing units (TPUs) and also counts companies such as Microsoft And Metaplatforms as customers. It is worth noting that all of these companies have been working on custom chips to train AI models efficiently and cost-effectively.

It's no surprise that Broadcom's AI revenues have been growing at a good pace lately. The company sold $1.5 billion worth of generative AI chips in the fourth quarter of its 2023 fiscal year (which ended October 29), which represented 16% of its total revenue. This translates to an annual turnover of $6 billion. So JPMorgan's estimate that Broadcom could generate $8 billion to $9 billion in AI chip revenue this year suggests a potential increase of 33 percent to 50 percent based on its annual revenue rate. last trimestre.

The valuation makes the stock an attractive bet

Analysts expect Broadcom's revenue to grow nearly 40% in its 2024 fiscal year to $50 billion, including a $12 billion contribution from VMware, which it recently acquired. The stock currently trades at 14.6 times sales after rising 105% over the past year.

Still, it's significantly cheaper than Nvidia, which trades at 38 times sales. Of course, Nvidia can justify its high valuation thanks to its significant AI business, much larger than that of Broadcom. However, conservative investors may want to look for cheaper AI chipsets, and that's where Broadcom comes in.

The company enjoys a healthy market share in custom AI chips, a market that is expected to grow at a healthy pace in the long term. Additionally, if Broadcom reached $50 billion in revenue this year and maintained its current sales multiple, its market cap could reach $730 billion. This would represent a 25% jump from current levels. This indicates that it's not too late for investors to buy this AI stock, despite the tremendous gains it has made over the past year.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Harsh Chauhan has no position in any of the securities mentioned. The Motley Fool holds positions and recommends JPMorgan Chase, Meta Platforms, Microsoft and Nvidia. The Motley Fool recommends Broadcom and Marvell Technology. The Motley Fool has a disclosure policy.

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