Is Broadcom the No. 1 AI Stock to Buy Now?

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A Stellar Q3 Sets the Stage

Broadcom (NASDAQ:AVGO) delivered a blockbuster fiscal third-quarter earnings report yesterday that solidifies its position as a powerhouse in the artificial intelligence (AI) boom. 

The AI chipmaker reported record revenue of $16 billion, a 22% year-over-year increase, driven by a 63% surge in AI semiconductor revenue to $5.2 billion. Its infrastructure software segment, bolstered by the 2023 VMware acquisition, grew 43% to $6.79 billion. 

Broadcom’s adjusted EBITDA hit $10.7 billion, up 30% from last year, reflecting robust profitability. The company also raised its Q4 revenue guidance to $17.4 billion, surpassing Wall Street’s $17.02 billion estimate, with AI revenue expected to reach $6.2 billion. 

AVGO stock is soaring 14% in morning trading today, pushing its market cap past $1.6 trillion. With accelerating growth and Nvidia’s (NASDAQ:NVDA) recent quarterly miss, is Broadcom now the AI stock to buy?

AI Dominance Fuels Record Results

Broadcom’s Q3 performance underscores its pivotal role in the AI infrastructure landscape. The company’s AI revenue growth of 63% year-over-year, driven by custom AI accelerators (XPUs) and Ethernet networking solutions, highlights its ability to meet soaring demand from hyperscale cloud providers. 

Semiconductor solutions, which include these AI chips, jumped 57% to $9.17 billion, accounting for a significant portion of total revenue. The infrastructure software segment, including VMware, contributed $6.79 billion, showcasing Broadcom’s diversified portfolio. The company’s adjusted EBITDA margin reached 66%, reflecting its operational efficiency despite a projected 70-basis-point gross margin decline next quarter due to a higher XPU mix. 

Broadcom’s free cash flow of $7.02 billion — up 47% year-over-year — further demonstrates its financial strength. With a $110 billion backlog, heavily weighted toward AI, Broadcom is well-positioned to capitalize on the growing need for AI infrastructure.

A $10 Billion Deal Sparks Excitement

A major highlight from the earnings call was Broadcom’s announcement of securing over $10 billion in AI infrastructure orders from a new, unnamed customer, widely speculated by analysts to be OpenAI. This deal, reported by the Financial Times, involves Broadcom developing custom AI chips for OpenAI, set to ship in 2026, as the ChatGPT maker aims to reduce reliance on Nvidia’s processors. 

This partnership adds a fourth major hyperscale customer to Broadcom’s roster, alongside existing clients like Google, Meta Platforms (NASDAQ:META), and ByteDance. CEO Hock Tan emphasized “immediate and fairly substantial demand” for these XPUs, boosting confidence in fiscal 2026 AI revenue growth, projected to exceed the 60% growth rate expected for 2025. 

This deal not only validates Broadcom’s technological edge but also positions it to capture a significant share of the AI chip market.

CEO’s Long-Term Commitment Signals Confidence

Adding to investor optimism, Tan extended his contract through 2030, indicating he strongly believes in the company’s growth trajectory. Analysts at Bernstein noted that Tan’s decision to stay suggests he sees “something worth sticking around for,” particularly as Broadcom expands its AI footprint. 

Tan’s leadership has been instrumental in navigating the company through the AI boom, with strategic acquisitions like VMware and a focus on custom AI solutions. His optimism about fiscal 2026, driven by both new and existing customers, underscores Broadcom’s long-term potential in a market projected to reach $60 billion to $90 billion for AI chips and networking by 2027.

Nvidia’s Stumble, Broadcom’s Surge

In contrast, AI chip leader Nvidia reported phenomenal Q2 results but missed Wall Street’s lofty expectations, causing a dip in its stock price. While Nvidia’s GPUs dominate AI training, Broadcom’s custom XPUs and networking solutions cater to complementary needs, particularly in inference and data center connectivity. 

Nvidia’s revenue grew 122% year-over-year, but its slight miss highlighted the market’s high expectations in light of its valuation. Broadcom, however, exceeded estimates and raised guidance, benefiting from its diversified revenue streams and less dependence on a single market segment. 

This resilience, coupled with its new OpenAI partnership, positions Broadcom to capture market share without directly competing with Nvidia’s GPU dominance.

Key Takeaway

Broadcom’s specialized AI chips, designed for hyperscale data centers, set it apart from Nvidia’s GPU-focused offerings. These XPUs, tailored for specific AI workloads, and Broadcom’s Ethernet networking solutions address critical infrastructure needs for cloud providers, giving the company a unique niche in the AI ecosystem. 

Unlike Nvidia, Broadcom avoids head-to-head competition, instead complementing the AI supply chain with custom solutions and software integration via VMware. With a $10 billion OpenAI deal (allegedly), a robust $110 billion backlog, and Tan’s extended tenure, Broadcom has a tremendous runway for growth. 

Its diversified portfolio, strong financials, and strategic partnerships make AVGO the top AI stock to buy now, offering investors exposure to the AI boom with less volatility than Nvidia’s high-expectation-driven stock.

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