Broadcom vs. AMD: Who is the best AI chip stock to bet on after NVIDIA?

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Author: Justin Pope

Translation: Chao Xiang Research

Introduction: Beyond NVIDIA, the competition for the second place in AI chips is heating up. AMD chooses to directly compete with NVIDIA in the general-purpose GPU route, while Broadcom takes a differentiated path with custom chips (XPU), securing top clients like Anthropic, Google, Meta, and OpenAI.

After the latest earnings report, Broadcom's stock price plummeted, but the CEO still insists on the goal of $100 billion in AI chip revenue for fiscal year 2027. Motley Fool analyst Justin Pope believes that even if Broadcom's valuation is higher, this premium is worth paying.

Caption: Source Getty Images

NVIDIA still firmly holds the top position in the AI data center chip market. But the AI market is so huge that the second place is also valuable. According to Statista, the AI chip market is expected to grow to $333 billion by 2030.

This means other companies also have opportunities to make significant profits for investors. Broadcom (AVGO, down 7.49% today) and AMD (down 11.01% today) are the two most competitive candidates. Both companies have made progress in AI chips, but overall, one is clearly more worth holding than the other.

AMD Chooses a More Difficult Path

The core question is: how can a smaller company compete for market share against industry giants?

AMD's strategy is to directly compete with NVIDIA in the general AI chip field. Fairly speaking, it has indeed achieved some results. In Q1 2026, data center revenue increased by 57% year-over-year, reaching $5.8 billion.

Large-scale AI clients naturally prefer not to put all their eggs in NVIDIA's basket, and AMD benefits from this. AMD recently announced it will supply Meta with 6 GW of Instinct GPUs, with the first GW being a custom version.

However, AMD is unlikely to truly threaten NVIDIA's dominance. Meta and other NVIDIA clients are deeply integrated with NVIDIA's CUDA software ecosystem. The moat of CUDA cannot be overcome by hardware parameters alone.

Broadcom's Custom Chip Route Is the Winner

To break through NVIDIA's moat, a different approach is needed. Broadcom has achieved this with XPU chips.

Unlike AMD, which emphasizes general-purpose AI chips, Broadcom customizes chips for each client's AI workloads. This approach offers efficiency advantages and makes client relationships more sticky. Currently, Broadcom is designing custom chips for companies like Anthropic, Alphabet (Google's parent company), Meta, and OpenAI.

As computing needs shift from training to inference, efficiency becomes even more critical, and the advantages of custom chips will be further amplified.

After the Q2 earnings report, Wall Street sold off Broadcom significantly, mainly because the Q3 AI revenue guidance was below expectations. But CEO Hock Tan reiterated during the earnings call that the company's long-term target of $100 billion in AI chip sales for FY2027 remains unchanged. In Q2, AI revenue was $10.8 billion, and with the ongoing deployment of custom chip projects, there is still much room for growth.

The Reason for Its Value

Broadcom has a top-tier AI client base and is steadily progressing toward the $100 billion annual revenue goal. Its competitive position is indeed better than AMD's. Investors may notice that Broadcom's stock is more expensive than AMD's, but this premium is justified.

Caption: Comparison of forward price-to-sales ratios of AVGO and AMD, source YCharts

Analysts expect Broadcom's growth rate to far surpass AMD's, and the valuation gap between the two is not large. Especially after this earnings-driven correction, Broadcom is more worth buying.