Author: Justin Pope

Translation: Tide Research

Introduction: Beyond Nvidia, the battle for the second place in AI chips is heating up. AMD has chosen to directly compete with Nvidia's general-purpose GPU path, while Broadcom has taken the differentiated path of custom chips (XPU), securing top clients such as Anthropic, Google, Meta, and OpenAI.

After the latest earnings report, Broadcom's stock price plummeted, but the CEO still insists on the target of achieving $100 billion in annual AI chip revenue by fiscal year 2027. Motley Fool analyst Justin Pope believes that even if Broadcom's valuation is more expensive, this premium is worth paying.

Caption: Source Getty Images

Nvidia still firmly holds the top position in the AI data center chip market. However, the AI pie is incredibly large, and the second place is also valuable. According to Statista, the AI chip market is expected to grow to $333 billion by 2030.

This means other companies also have the opportunity to make significant profits for investors. Broadcom (AVGO, down 7.49% on the day) and AMD (down 11.01% on the day) are the two most competitive candidates. Both companies have made progress in the AI chip field, but overall, one is clearly more worth holding than the other.

AMD has chosen a more difficult path

The core question is: how can a smaller company compete for market share with industry giants?

AMD's strategy is to compete directly with Nvidia in the general AI chip space. To be fair, it has indeed achieved some results. In Q1 2026, data center revenue grew by 57% year-on-year, reaching $5.8 billion.

AI hyperscale customers inherently do not want to put all their eggs in Nvidia's basket, and AMD benefits from this. AMD recently announced it will supply Meta with 6 GW of Instinct GPUs, with the first GW being a custom version.

However, AMD is unlikely to genuinely threaten Nvidia's dominance. Meta and other Nvidia clients are already deeply tied to Nvidia's CUDA software ecosystem. The moat of CUDA cannot be breached merely by hardware parameters.

Broadcom's custom chip path is the winner

To break a hole in Nvidia's moat, a different path must be taken. Broadcom has achieved this with its XPU chips.

Unlike AMD's emphasis on general AI chips, Broadcom customizes chips for each customer's AI workload. This approach brings efficiency advantages and makes customer relationships more sticky. Currently, Broadcom is designing custom chips for companies like Anthropic, Alphabet (Google's parent company), Meta, and OpenAI.

As the demand for computing power shifts from training to inference, efficiency becomes even more critical, and the advantages of custom chips will be further magnified.

After the latest Q2 earnings report, Wall Street heavily sold off Broadcom, primarily due to third-quarter AI revenue guidance being lower than expected. However, CEO Hock Tan reiterated in the earnings call that the company’s long-term expectation for AI chip annual sales to reach $100 billion by fiscal year 2027 remains unchanged. Q2 AI revenue was $10.8 billion, and with custom chip projects rolling out, there is still significant growth potential.

Expensive for a reason

Broadcom has a group of top AI clients and is continuously advancing towards its $100 billion annual revenue target; its competitive position is indeed better than AMD's. Investors may notice that Broadcom's stock is more expensive than AMD's, but this premium is justified.

Caption: Comparison of AVGO and AMD's forward price-to-sales ratios, source YCharts

Analysts expect Broadcom's growth rate to far exceed that of AMD, and the valuation gap between the two is not that large. Especially in this wave of pullback following the earnings report, Broadcom is more worth buying.