Key Points
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Broadcom’s AI semiconductor revenue jumped 221% year over year as demand for custom chips accelerated.
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Nvidia’s AI growth is broadening beyond hyperscalers.
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Custom chips could pressure Nvidia in some inference workloads while creating a major new growth opportunity for Broadcom.
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Broadcom (NASDAQ: AVGO) and Nvidia (NASDAQ: NVDA) both benefit from the global artificial intelligence (AI) infrastructure build-out. Broadcom is helping large customers build custom chips for specific workloads, while Nvidia sells a broader computing platform that can serve many customers and use cases.
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Broadcom’s recent growth is impressive. AI semiconductor revenue jumped 221% year over year to $16.7 billion, accounting for 56% of the company’s total revenue in fiscal 2026’s Q3 (ended Aug. 2). Management now expects AI chip revenue of $115 billion in fiscal 2027 and $230 billion in fiscal 2028.
Nvidia is growing from a much larger base. The company’s revenue surged 106% year over year to $96.2 billion, while Data Center revenue jumped 117% year over year to $89 billion in fiscal 2027’s Q2 (ended July 26).
Broadcom benefits from one of Nvidia’s biggest risks
Some large AI companies are developing custom chips to reduce computing costs and optimize inference workloads (i.e., running AI models in production environments). OpenAI’s Jalapeño chip, co-developed with Broadcom, is one example. According to Reuters, OpenAI developed the chip partly to reduce its reliance on Nvidia GPUs and lower operating costs. OpenAI said that Jalapeño was built specifically to run large AI models more efficiently and is planned for deployment across very large data centers.
Hence, a shift toward custom accelerators could pressure Nvidia’s share of inference computing while directly creating additional revenue opportunities for Broadcom.
The threat is most direct among hyperscalers, which have the scale and resources to develop custom chips. However, Nvidia’s growth is becoming broader. Revenue from its AI cloud, industrial, and enterprise customers jumped 138% year over year in the second quarter, faster than the 102% year-over-year growth in its hyperscale business.
Nvidia is expanding rapidly beyond the large customers that are most capable of designing their own chips. Additionally, Nvidia traded at roughly 14.4 times forward one-year earnings, compared with about 18.8 times for Broadcom (as of Sept. 10).
Hence, Nvidia offers greater AI scale, broader customer exposure, and a more reasonable valuation.
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Manali Pradhan, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Broadcom and Nvidia. The Motley Fool has a disclosure policy.
