Prediction: This Artificial Intelligence (AI) Stock Will Be The Next Household Name

Key Points

• Broadcom, a major chipmaker, is seeing its AI division grow rapidly.

• AI hyperscalers are working with the company to design custom AI chips.

• This all bodes well for the future, but the stock carries a premium price tag.

• 10 stocks we like better than Broadcom ›

A few years ago, only gamers and cryptocurrency miners really knew Nvidia (NASDAQ: NVDA). While it was in some personal computers from the factory, it was far from a household name. Now, it's the world's largest company and almost everyone knows about it.

For the most part, any company valued at about $1 trillion is already a household name, but there is one company that is flying under most investors' radar despite its large size. Broadcom (NASDAQ: AVGO) is a $1.6 trillion company and holds seventh place among the world's largest companies. However, I'd wager that most people have no idea what Broadcom does.

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I think Broadcom has the potential to become the next big household name, especially with all of the increased AI spending that's coming down the pipeline.

Image source: Getty Images.

Broadcom's AI business has a huge opportunity

Broadcom has its finger in many different technology fields. It provides cybersecurity solutions, mainframe hardware and software, a virtual desktop platform (via its acquisition of VMware), and many other offerings. That may sound a bit boring (and it is), but it also has an exciting AI computing segment that's slated to take off over the next few years.

Broadcom's AI business comes in two major forms: connectivity switches and custom AI accelerators. Its connectivity switches are deployed in data centers to stitch back together information that was split up to be computed on several different computing units.

However, the bigger opportunity lies in its custom AI accelerators. These are devices that are designed in collaboration with the end user. It calls these products XPUs, and they are growing in popularity. Nvidia's graphics processing units (GPUs) are incredible computing units that are great for a wide variety of applications. However, if a user is only going to run one type of workload on them, this versatility is wasted.

That's where Broadcom's XPUs come in. With Broadcom and the end user designing the chip for the exact workload it will see, it allows them to outperform a GPU at a lower cost point. With artificial intelligence workloads starting to become more standardized, this makes the market opportunity for these devices massive.

Nvidia estimates that global data center capital expenditures will reach $3 trillion to $4 trillion by 2030. This is a massive increase from today's totals and is a positive sign for every company involved in the AI arms race, regardless of whether it's Nvidia or Broadcom.

This is a monstrous opportunity for Broadcom, but what does it mean for the stock?

Broadcom's stock isn't cheap

AI is only a fraction of Broadcom's current revenue, but it could take a larger revenue share with its outsized growth. In its fiscal 2025's third quarter (ended Aug. 3), Broadcom's revenue rose 22% year over year to $15.9 billion. However, its AI revenue rose 63% year over year to $5.2 billion. It anticipates $6.2 billion in AI revenue during Q4, clearly marking massive growth.

As AI starts to capture a larger portion of Broadcom's business, its overall growth rate will increase, transforming Broadcom into a top-tier growth stock along the way. However, the market has already caught wind of this and has given Broadcom an expensive valuation multiple.

AVGO PE Ratio (Forward) data by YCharts

At more than 50 times forward earnings, Broadcom's stock is far from cheap. Still, Broadcom could turn out to be a monster investment if the massive spending on data centers grows to the $3 trillion to $4 trillion range, like Nvidia's management projects.

Although a lot of Broadcom's gains have already been pulled forward, I think it could still be a smart buying opportunity for long-term investors. The AI arms race is far from over, and Broadcom is expected to take some market share from Nvidia because of its purpose-built AI chips. This could transform Broadcom into a household name, placing it alongside the likes of Nvidia.

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Keithen Drury has positions in Broadcom and Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.