Yahoo Finance Missed Out on Nvidia’s Run-Up? My Best AI Stock to Buy and Hold
Written by Puja Tayal at The Motley Fool Canada
All through the generative artificial intelligence (AI) frenzy, Nvidia (NASDAQ:NVDA) was in the limelight with its data centre graphics processing units (GPUs). The stock surged as much as 700% between November 2022 and June 2024 as its data centre GPUs added billions to its revenue. Indeed, its GPUs are unbeatable in handling AI workloads, but there are specific chips for different tasks. If you missed Nvidia’s AI run-up, you can catch up with this alternative stock, gradually building its place in the AI infrastructure.
My best AI stock other than Nvidia to buy and hold
While Nvidia has a headstart in AI, another chip stock is moving swiftly in the AI space. The company I am talking about is Broadcom (NASDAQ:AVGO). You might know this company for its Ethernet switches used in data centre networking. This company was a key beneficiary in the 5G infrastructure buildout, providing broadband, server storage, networking, and wireless equipment to telcos. Last year, it acquired VMWare for US$61 billion to get exposure in the software business.
Broadcom has invested over US$3 billion in custom AI ASICs (application-specific integrated circuits) optimized for specific workloads. It is building custom AI ASICs with Meta Platforms and Alphabet’s Google. Broadcom’s switches also play a crucial role in AI infrastructure. Here’s how.
AI is about making a computer learn, think, analyze, and decide like a human. That requires the device to be connected to the cloud and access and process tons of data. This is possible with a denser 5G infrastructure and switches that can smoothly transmit data. Even Nvidia has started offering networking switches like Infiband for smooth AI workflow. Broadcom has the largest portfolio of switches used by data centres, enterprises, and service providers.
How Broadcom is monetizing the AI opportunity
Broadcom is selling its networking solutions and broadband chips to companies building AI infrastructure. It is also developing custom AI ASIC with industry leaders. The company believes its AI solutions alone present a US$150 billion revenue opportunity. It even increased its fiscal 2024 revenue forecast from AI-connected chips to US$11 billion from the previous US$10 billion.
The AI opportunity for Broadcom is now, and it is seeing the outcome of its investments. This will give reassurance to investors who saw their AI investments fall in the July tech stock correction. The market corrected as major tech giants like Amazon and Intel reported disappointing earnings despite heavy investments in AI.
Should you buy Broadcom stock?
Broadcom stock jumped 228% during the AI frenzy (November 2022 to June 2024). It has corrected 18% since mid-June despite reporting a stronger forecast. The dip came as the overall Nasdaq corrected. Broadcom is competing with Nvidia to grab a pie of the AI infrastructure market. You can diversify your AI portfolio by adding Broadcom to the mix. The stock is trading at 23.6 times its forward price-to-earnings ratio, which is cheaper than Nvidia’s 38.5 times.
You could buy and hold Broadcom stock for the long term. While the stock price will appreciate as the company expands in the AI space, it will also keep growing its dividend at a compounded annual growth rate of 35%.
If you had invested US$10,000 in Broadcom stock five years back when it was riding the 5G wave, your investment would now be worth $53,395 after excluding dividends. It is not too late to invest in Broadcom. While the fears of the AI bubble loom, Broadcom is a stock that will thrive in the long term with its strong fundamentals and advanced product portfolio.
The post Missed Out on Nvidia’s Run-Up? My Best AI Stock to Buy and Hold appeared first on The Motley Fool Canada.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool recommends Alphabet, Amazon, Intel, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy. Fool contributor Puja Tayal has no position in any of the stocks mentioned.
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