This Nvidia competitor has simply gained a giant contract.
Nvidia has been the dominant power within the world semiconductor trade because of its graphics processing models (GPUs), which have performed a crucial function in enabling the proliferation of synthetic intelligence (AI) functions. The demand for Nvidia’s GPUs has been so stable prior to now three years that Nvidia has now change into the world’s largest firm.
Nvidia continues to rule the AI knowledge middle GPU market, dealing with little or no menace from its friends thus far. Analysts expect its high line to leap by a formidable 58% within the present fiscal yr to greater than $206 billion. That is fairly spectacular for a corporation of Nvidia’s dimension. The inventory registered respectable good points of 34% in the marketplace this yr primarily based on the wholesome development that the corporate continues to ship.
Nonetheless, Nvidia’s inventory market efficiency has been overshadowed by Broadcom (AVGO -1.24%). Broadcom has appreciated 48% this yr and appears set to finish 2025 on a excessive be aware following latest developments. In actual fact, it will not be stunning to see Broadcom inventory outperforming Nvidia subsequent yr as properly. Let’s examine why that could be the case.
Picture supply: Nvidia.
Customized AI chips are anticipated to witness stronger demand in 2026
To date, the vast majority of AI mannequin coaching and inference has been carried out by Nvidia’s GPUs. GPUs are general-purpose computing chips with huge parallel computing energy, making them splendid for rapidly coaching AI fashions and transferring them into manufacturing. OpenAI selected Nvidia’s A100 knowledge middle GPUs to coach its in style chatbot ChatGPT three years in the past.
Nvidia constructed upon its first-mover benefit and managed an estimated 92% of the AI knowledge middle GPU market on the finish of final yr. Nonetheless, the most recent deal struck between OpenAI and Broadcom signifies that Nvidia’s affect over the AI chip market might wane. OpenAI will purchase customized AI accelerators value a whopping 10 gigawatts (GW) from Broadcom beginning within the second half of 2026.
The deployment is anticipated to be accomplished by the top of 2029. This can be a huge deal for Broadcom contemplating that it reportedly prices round $10 billion to construct a 1 GW knowledge middle. Round 60% of the funding that goes into constructing a knowledge middle is allotted towards chips and different computing {hardware}, which might put Broadcom’s potential addressable market from every gigawatt of OpenAI’s deployment at $6 billion.
So, Broadcom might be sitting on a possible income alternative value $60 billion from this deal over the subsequent three years. Broadcom’s customized AI processors have already been in terrific demand as hyperscalers and AI giants resembling OpenAI are gravitating towards these chips due to the benefits they get pleasure from over GPUs.
Customized AI processors are designed for performing focused duties, resembling AI inference. In consequence, they aren’t solely extra power-efficient at working these workloads but in addition get pleasure from a efficiency benefit since they needn’t carry out every other duties. Therefore, deploying customized AI processors will help save prices for hyperscalers.
Shipments of application-specific built-in circuits (ASICs) meant for deployment in AI knowledge facilities are anticipated to extend by 45% in 2026, in comparison with the anticipated development of 16% in GPUs. Broadcom is in the most effective place to profit from this development alternative because it leads the ASIC market with an estimated share of 70%.
Furthermore, the brand new take care of OpenAI together with one other $10 billion contract with an unnamed buyer that the corporate introduced final month ought to guarantee excellent development in Broadcom’s AI income subsequent yr.
Broadcom’s AI income might now improve at a sooner tempo
Broadcom is on observe to finish the present fiscal yr with virtually $20 billion in AI income, a rise of 64% from the earlier yr. The corporate reported a file income backlog of $110 billion on the finish of the fiscal third quarter (which ended on Aug. 3). That backlog is prone to have moved larger following the latest offers struck by the corporate.
Do not be shocked to see Broadcom’s income leaping at a sooner tempo than the 33% development that Wall Avenue is anticipating subsequent fiscal yr, which might be a pleasant enchancment over the 23% development it’s anticipated to ship within the present one. There’s a good probability that its income development in the long term might be higher than expectations as properly.
AVGO Income Estimates for Present Fiscal 12 months knowledge by YCharts
Broadcom was already anticipating a serviceable addressable market value $60 billion to $90 billion primarily based on the three AI clients it was serving till earlier this yr. That addressable market is now a lot larger following the OpenAI contract, which opens up the potential of stronger development and extra upside for Broadcom buyers.
Harsh Chauhan has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Nvidia. The Motley Idiot recommends Broadcom. The Motley Idiot has a disclosure coverage.
