Artificial intelligence (AI) has been a dominant investment theme on Wall Street in the past couple of years. The rapid and broad usage of these technologies, along with their transformational nature, have led many research firms to update their estimates about the AI market opportunity.
The Market Opportunity
According to McKinsey, AI is expected to add $13.6 trillion to $22.1 trillion in economic value to current global GDP by 2030. PWC expects AI to increase economic activity by $15.1 trillion by 2030. Although there is significant variation in these estimates, most firms agree that the impact of AI on the global economy will be sizable.
Nvidia: A Beneficiary of the AI Boom
Nvidia (NASDAQ: NVDA) has been one of the major beneficiaries of this fast-evolving trend, driven by extensive adoption of its AI-optimized chips. With the supply of these chips falling short of demand, the company has also benefited from significant pricing power.
A Comment that Could be Bad News for Nvidia
However, this dynamic seems on the verge of changing, as is evident by a comment from Microsoft (NASDAQ: MSFT) CEO Satya Nadella. In a recent interview with the BG2Pod podcast, Nadella talked about the initial AI boom created by OpenAI’s launch of ChatGPT in 2022 and Microsoft’s efforts to catch up in anticipation of the higher demand for AI services.
Nadella was asked about Microsoft’s constraints right now and said, "Power yes … I am not chip supply constrained." He was referencing the high demand for electricity to power all the data centers being built, but that the company is in better shape going into 2025 on the chip end.
Interpreting Nadella’s Comments
Nadella’s comments have been interpreted by some to imply the possibility that the company has already built a large inventory of Nvidia chips or found alternatives to meet its needs through efficiencies, demand still ramping up, minimal competition currently, partnerships, and custom-made AI chips.
A Potential Tailwind for Broadcom
However, there is one high-flying stock that can benefit from these developments. Broadcom (NASDAQ: AVGO) is a leading custom AI accelerators and AI-optimized networking solutions provider. The company posted a record revenue of $51.6 billion in fiscal 2024, implying a year-over-year jump of 44%.
Broadcom’s Strengths
AI revenue surged at an even faster pace of 54% to $10.8 billion in the same period. Broadcom’s strength lies in its ability to provide high-performance networking solutions that are optimized for AI workloads.
A Potential Growth Opportunity
Furthermore, Microsoft’s chip sufficiency may also prove to be a major tailwind for Broadcom in the coming years. With increased demand for data center capacity, Microsoft is likely to ramp up its storage requirements, which could lead to heightened demand for Broadcom’s server storage solutions.
What does this mean for Broadcom Investors?
Broadcom is currently trading at about 21.1 times trailing-12-month sales, significantly higher than its historical three-year average price-to-sales (P/S) multiple of 13.04. However, considering the company’s robust growth potential, this rich valuation seems justified.
Conclusion
In conclusion, while Nadella’s comments may be bad news for Nvidia, they could be great news for Broadcom investors. With increased demand for data center capacity and AI-optimized networking solutions, Broadcom is well-positioned to benefit from the AI boom in 2025.
Recommended Stock: Broadcom (AVGO)
Investors who are interested in benefiting from the AI boom may want to consider investing in Broadcom. The company’s robust growth potential, combined with its rich valuation, makes it an attractive option for those looking to invest in the AI space.
Double Down Alert
If you feel like you’ve already missed your chance to invest in the most successful stocks, now is the best time to buy before it’s too late. Our expert team of analysts issues a ‘Double Down’ stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, this may be your second chance.
Invest Now
Don’t miss out on the opportunity to invest in Broadcom and potentially benefit from the AI boom in 2025. Invest now and see the returns for yourself.
Recommended Stocks:
- Nvidia (NVDA)
- Microsoft (MSFT)
- Taiwan Semiconductor Manufacturing (TSM)
Investing in these stocks can provide you with exposure to the growing AI market, but it’s essential to do your research and consider your investment goals before making any decisions.
