Forget Tesla: This AI Stock Deserves a Spot in the Magnificent 7

Forget about Elon Musk and Tesla (NASDAQ:TSLA) for a moment. While shares may seem like the biggest bargain of the Magnificent Seven basket, given its shaky start to the year and the robotaxi opportunity that lies ahead, I do think that the name could fluctuate choppily for quite some time, as the EV and AI titan hopes to hang onto its $1 trillion valuation.

With new rivals in the robotaxi scene coming to be, it will be interesting to see how the EV pioneer fares as the self-driving roads become that much more crowded. Indeed, Lucid Group (NASDAQ:LCID) punched its ticket into the robotaxi scene this week, making the medium-term future even more cloudy for Tesla, a name that was seen as a go-to for those looking to profit from the imminent robotaxi boom.

Time will tell if Tesla can get back in the fast lane. If it can get robotaxis right, it’s Elon who could have the last laugh as TSLA shares return to breakout mode after spending the last few years moving intensely in both directions. For now, though, I think there are better candidates more deserving of Tesla’s spot in the Mag Seven. Most notable among them has to be Broadcom (NASDAQ:AVGO), which has soared 217% in the last two years compared to Tesla’s market-trailing 8% gain.

The case for Broadcom joining the Mag Seven

With shares of AVGO rocketing to new all-time highs north of $286 per share on Thursday’s upbeat session, the AI chip darling looks like it could give Nvidia (NASDAQ:NVDA) a good run in the second half.

Indeed, Nvidia provides the firepower for high-performance AI compute with its cutting-edge GPUs, while Broadcom seems to be a play on chip customization and optimization.

Over the coming quarters, numerous AI data centers are expected to be built, and they will be thirsty for power as the demand for AI products continues to surge. At the same time, we shouldn’t ignore the shift to edge AI, especially as consumers seek greater security by running their more sensitive and private tasks on-device. As the industry matures, it’s not too hard to imagine that there will be a ton of winners in the cloud and on the edge.

In any case, Broadcom stands out as a great bet, especially for Nvidia shareholders seeking to diversify their AI exposure a bit. Indeed, it’d be nice to have the high-end (GPUs) and low-end (custom ASICs) covered, as AI continues its evolution.

Broadcom’s growth story may be underrated compared to Nvidia’s

Personally, I think Broadcom’s growth narrative is underrated compared to Nvidia since it’s undeniably more exciting to go down the route of best-in-class AI compute, even if it entails greater energy consumption and far heftier costs. As firms shift gears from training AI models to large-scale inference, I do think the tides could begin to shift a bit more towards Broadcom.

Now, a tripling in two years is nothing to sneeze at. However, at 34.2 times forward price-to-earnings (P/E), the name appears quite cheap, especially as more firms opt to invest in custom-tailored solutions for long-term savings. Indeed, it’s a more substantial investment to commit to those so-called XPUs. As Broadcom adds to its ecosystem of intelligent tools, the costs of going custom, I believe, will go down. And as the price of admission goes down, one can expect more entrants to come flocking in.

Simply put, if you’re inclined to believe more firms will want to reduce their reliance on Nvidia GPUs, I think Broadcom stands out as a winner as the firm looks to take a larger slice of the AI spending not only from big tech, but a broader range of firms that see the value in having a chip that’s more optimized for specific AI tasks.

Could it be that in 10 years, hyperscalers will move away from GPUs as they swap them out with their customized solutions? That’s always a possibility.