Which AI chip stock is a better buy in 2025: Nvidia or Broadcom?

Artificial intelligence (AI) offers many exciting, long-term possibilities, but the technology’s thirst for computing power has clearly fueled the incredible growth of the semiconductor sector. Chip companies include: nvidia (NVDA -2.09%) and Broadcom (AVGO -1.47%) There has been a surge in the realization that AI will create billion-dollar opportunities for each and every one of us. Since January, both stocks have posted month-on-month gains. S&P 500Nvidia leads the pack, up more than 180%.

Both companies are expecting big things in 2025. Nvidia is releasing a successor to its very popular Hopper AI chip architecture. At the same time, Broadcom recently announced a significant AI chip deal that will fuel growth in the coming years.

But which stocks are better to buy in 2025?

Both stocks are AI winners

Nvidia is undoubtedly a big name in the AI ​​space among investors. The company’s expertise in graphics processing unit (GPU) chips has translated well to AI. Nvidia’s Hopper accelerator chip architecture has become the standard for technology companies developing AI, which requires a lot of computing power to train on massive amounts of data.

While the H100 chip remains popular, Nvidia is launching its next-generation architecture, the Blackwell chip, to meet the growing demand for smarter AI models. Nvidia CEO Jensen Huang believes Blackwell could become the company’s most successful product. Analysts estimate that Nvidia will deliver earnings growth of 38% on average over the long term, reflecting these high expectations.

Broadcom specializes in networking and other connectivity applications and has a long and successful history in the semiconductor industry. But it’s no longer a pure chip business. The company has diversified into enterprise infrastructure software, which now accounts for approximately 41% of its total revenue. Broadcom is also increasingly involved in AI chips. AI-related sales in fiscal 2024 totaled $12.2 billion, an increase of 220% from last year.

Executives recently joined prominent AI companies (unnamed OpenAI and apologize) uses an XPU (Extreme Processing Unit) chip. Broadcom believes the overall AI opportunity will reach $60 billion to $90 billion by 2027, with management predicting significant market share. Analysts believe Broadcom’s long-term earnings growth will average about 22% per year.

Overall, both companies appear to have found room for success in the AI ​​space.

It may come down to better value between the two.

Since both companies appear to be well-positioned for growth, whichever buy is better may come down to giving you the most bang for your buck. The PEG ratio is excellent for this. This compares the stock’s value to the company’s expected growth. The lower the percentage, the better deal you can get.

For high-quality stocks, I generally feel comfortable buying stocks with a PEG ratio of up to 2.0 to 2.5. The composition of each company is as follows:

NVDA PE Ratio (Forward) Data from YCharts

According to these numbers, Nvidia’s PEG ratio is 1.2 while Broadcom’s PEG ratio is 1.8.

Remember, this ratio only tells you how much you are paying for potential growth. Estimates are just that, and are subject to change. The volatility of a company’s future earnings may also affect investors’ willingness to pay.

Nvidia is a better value based on the numbers. Still, Blackwell’s argument is that Nvidia is a riskier stock than Broadcom, which has more diversified businesses, as it could be better or worse than expected.

Is there a winner? This stock could be a better buy heading into the new year

Since both stocks are trading at lower PEG ratios than I think are reasonable, long-term investors could buy either (or both) today. That said, there is a winner.

If both stocks were trading at similar PEG ratios, I would probably pick Broadcom because it relies less on AI. However, Nvidia and its low PEG ratio seem to value this risk. A 1.2 PEG ratio is a bargain for most stocks, let alone world-dominant AI companies.

It’s also unlikely that AI will be a fad. There is too much money sitting in that area. Meanwhile, Blackwell appears poised to maintain Nvidia’s dominance, and innovations in AI technology could fuel demand for increasingly complex AI chips beyond that. So the future looks bright for both companies, but Nvidia presents a better buying opportunity in 2025.