Broadcom vs. Advanced Micro Devices: Wall Street Sees Much Faster Earnings Growth for One, But Thinks the Other Stock Will Outperform

As the artificial intelligence (AI) market continues to boom, investors are keeping a close eye on semiconductor companies that are well-positioned to capitalize on this trend. Two such companies, Broadcom (AVGO) and Advanced Micro Devices (AMD), have been making waves in the AI chip market, but which one is the better investment? Let's take a closer look at their competitive advantages, challenges, and earnings growth prospects to determine which stock is more likely to outperform in the near future.



Broadcom: Custom Chip Expertise and Market Leadership
Broadcom has focused on creating custom chips for large tech players like Alphabet, Amazon, and Microsoft, as well as hyperscalers. This expertise positions it well in the custom chip market, which is expected to be the path forward for AI. The company's three hyperscaler customers represent an AI serviceable addressable market (SAM) for custom chips and network in the $60 billion to $90 billion range in fiscal 2027. Broadcom's strong market position and focus on custom chips make it a compelling choice for investors looking to capitalize on the AI trend.

However, Broadcom faces competition from Nvidia, which poses a significant challenge in the AI chip market. Nvidia's extreme pricing power and high gross profit margins make it a formidable competitor. Additionally, Broadcom's rich valuation compared to historical levels may limit its short-term upside potential.

Advanced Micro Devices: AI-specific Products and Competitive Pricing
AMD offers AI-specific products like its Instinct GPU series, which are designed for deep learning and high-performance computing. These products cater to the growing demand for AI solutions. AMD's competitive pricing, with chips generally cheaper than Nvidia's, makes it an attractive alternative for customers looking to optimize their costs. The company's strong financial performance, with analysts expecting its earnings to grow nicely in 2024 following a drop in 2023, further enhances its appeal.

Nevertheless, AMD also faces stiff competition from Nvidia in the AI chip market. Nvidia's dominant position and pricing power make it a challenging competitor for AMD. Additionally, AMD's chips are not as powerful as Nvidia's, which may limit its market share in the AI chip market. The company's rich valuation compared to historical levels may also impact its short-term upside potential.

Wall Street's Take on AVGO and AMD
Wall Street analysts currently expect one of these companies to grow earnings faster in 2025, but the other to outperform in stock price appreciation over the next 12 to 18 months. Broadcom's earnings growth is expected to be 223% in 2025, while AMD's earnings growth is projected to be 147%. However, analysts seem to be more bullish on AMD's stock, with an average price target suggesting nearly 33% upside from current levels, compared to Broadcom's minimal upside.

In conclusion, both Broadcom and AMD have their unique competitive advantages and challenges in the AI chip market. Broadcom's expertise in custom chips and market leadership position make it a strong contender, while AMD's AI-specific products and competitive pricing give it an edge. However, both companies face significant competition from Nvidia and may have valuation concerns that could impact their short-term performance. Investors should carefully consider the specific factors contributing to each company's earnings growth expectations and market position before making an investment decision.