This Artificial Intelligence (AI) Stock Has Quietly Outperformed Nvidia All Year

Key Points

• Increasing adoption of custom AI accelerators and AI-optimized networking hardware is proving to be a key growth catalyst for Broadcom.

• VMware Cloud Foundation is giving Broadcom’s clients a practical and secure alternative to public cloud.

• Broadcom's record backlog gives it significant revenue visibility for the coming quarters.

• 10 stocks we like better than Broadcom ›

Nvidia remains the most talked-about artificial intelligence (AI) stock on Wall Street, but another semiconductor leader has actually delivered stronger gains this year.

Broadcom (NASDAQ: AVGO), best known for its diversified portfolio comprising custom AI chips, Ethernet networking, and an enterprise software business, has been one of the strongest-performing AI stocks in 2025. Broadcom's shares are up roughly 32% to date, compared with Nvidia's 27.8%.

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Here's why Broadcom has been outperforming Nvidia in 2025.

Image source: Getty Images.

Solid AI Performance

Broadcom has delivered stellar results in the third quarter of fiscal 2025 (ended Aug. 3). The company's revenues soared 22% year over year to nearly $15.9 billion, with AI semiconductor sales (custom AI accelerators, AI networking chips, and other AI-related silicon) rising 63% year over year to $5.2 billion.

Management expects the momentum to continue, with AI semiconductor revenues projected to soar 66% year over year to $6.2 billion in the fourth quarter. The company has also guided for the company's total revenues to surge 24% year over year to $17.4 billion in the fourth quarter.

These targets are easily achievable, considering that the company has a record $110 billion consolidated backlog, driven mainly by demand from the AI market. Thus, the company enjoys significant revenue visibility for the coming quarters.

Custom accelerators and networking

Not surprisingly, custom AI accelerators, known as XPUs, are powering much of that growth. These chips now account for approximately 65% of Broadcom's AI revenue, supported by the demand from three major hyperscale clients who are rapidly scaling their AI infrastructure.

In the third quarter, the company also secured another major hyperscaler client that placed orders for AI racks based on XPUs worth more than $10 billion.

With demand accelerating, management expects AI revenue growth in fiscal 2026 to be faster than that seen in fiscal 2025.

Networking demand is also growing at a breathtaking pace. As AI clusters continue to grow larger, demand for Ethernet switches and fabric routers to connect GPUs or XPUs within racks, out across racks, and even across entire data centers has been on the rise.

Broadcom's recently launched Tomahawk 6 switch has been helping lower latency and power costs. The company has also launched the next-generation Jericho4 fabric router, which allows for efficient connection and management of network congestion in large AI clusters across multiple data centers.

Management has noted that while some proprietary networking solutions do exist, Open Ethernet offers the flexibility and lower cost that customers are looking for as AI workloads expand. This focus on open standards is also proving to be a tailwind for Broadcom's networking portfolio.

Enterprise software adoption

Enterprise software is also gaining traction. Broadcom's infrastructure software revenue grew 17% year over year to $6.8 billion. The company also released a fully integrated cloud platform, VMware Cloud Foundation (VCF) version 9.0, after a two-year engineering development effort. More than 90% of Broadcom's top 10,000 customers have purchased licenses for VCF. The next phase is deployment at scale, adding a sticky and recurring revenue stream.

The software platform enables enterprises to build private clouds on-premise or extend them to a virtual private cloud in the public cloud, allowing them to manage sensitive workloads with greater control. By virtualizing and commoditizing the underlying hardware, Broadcom reduces infrastructure costs while giving enterprises a credible alternative to relying solely on public cloud providers.

Enterprise software adoption can be a multi-year growth story, as enterprises build hybrid environments that can keep sensitive data on-premises while still tapping into the AI capabilities of modern data centers.

The story of the numbers

Broadcom's profitability underscores the strength of its business model. The company reported that adjusted EBITDA increased 30% year over year to $10.7 billion, and free cash flow reached $7 billion in the third quarter. The company also returned $2.8 billion in dividends during the quarter, showing its commitment to returning value to shareholders.

Broadcom's legacy businesses, such as wireless and storage, have been slower to recover. Revenue in those segments was flat in the third quarter, though broadband showed strong sequential growth. Management expects a U-shaped recovery, with a more meaningful rebound emerging by mid- to late-2026.

Valuation

Broadcom stock is definitely not cheap -- trading above 35 times forward earnings, significantly higher than the semiconductor industry's median forward price-to-earnings (P/E) multiple of 26.8x. But the premium valuation seems justified, considering the diversified business model and robust financials. Hence, investors are rightly valuing Broadcom more than just a cyclical chipmaker but as an indispensable AI infrastructure player.

Considering these catalysts, Broadcom appears to be an appealing stock pick now.

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Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.