Broadcom vs. Nvidia: 1 Critical Metric Shows Which Artificial Intelligence (AI) Chipmaker Is the Better Buy After Earnings

Broadcom vs. Nvidia: 1 Critical Metric Shows Which Artificial Intelligence (AI) Chipmaker Is the Better Buy After Earnings

Keithen Drury, The Motley Fool

Sat, September 5, 2026 at 10:05 PM GMT+3 5 min read

Broadcom (NASDAQ: AVGO) and Nvidia (NASDAQ: NVDA) are two of the biggest names in the chipmaking business. While AMD is sometimes mentioned in the same conversations as those two giant chipmakers, it doesn't hold a candle to them in the AI accelerator space. Both Broadcom and Nvidia have recently provided quarterly updates to investors, and both of them are doing incredibly well.

But which one is the better buy now?

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Nvidia has a broad business, while Broadcom is specialized

Nvidia's chief products are graphics processing units (GPUs), which are broad-purpose accelerated computing units. These flexible chips can be tasked with nearly any type of workload that's suitable for a parallel processor and deliver incredible results. However, many of a GPU's capabilities can go to waste if that computing unit only deals with one type of workload in its service life.

Broadcom addresses that problem by designing ASICs -- application-specific integrated circuits. These chips are purpose-built for narrow workloads, so anything extraneous to those workloads can be dropped from their design, which saves money in several ways.

ASICs are nothing new; they've been used in industry for a long time. Recently, Broadcom has been catering to the hyperscaler and frontier labs markets, designing ASICs to handle the specific workloads generated by AI. Broadcom has partnered with hyperscalers such as Alphabet and Meta Platforms, and large language developers like Anthropic and OpenAI. Orders for those chips are starting to ramp up, which is boosting its results.

Both GPUs and ASICs have their merits, and no AI hyperscaler will ever be able to fully switch away from broad-purpose GPUs from a company like Nvidia. However, as hyperscalers look to optimize their processes, they may find that data centers with a higher share of custom AI chips from Broadcom could make the most sense. We'll see how it pans out, but currently, it looks like Nvidia is at higher risk of losing some of its massive market share in data center chips to custom designs than Broadcom is of losing share to Nvidia.

This tips the investment thesis scales in favor of Broadcom, as it's easier to be the hunter than the hunted, but Nvidia is still doing quite well in its own right.

Both Nvidia and Broadcom are crushing results

When you look at the financials of these two companies, it's hard to be disappointed with either.

Broadcom reported its fiscal Q3 numbers on Sept. 2, and it noted that its AI semiconductor division grew by 221% year over year to $16.7 billion. Broadcom does other things as a company, so its overall growth rate was 86%, which is still impressive.

Nvidia's AI-specific results weren't as impressive, with data center revenue (which is the division most influenced by AI spending) growing at a 117% pace to $89 billion. Still, it's impossible to complain about a 117% growth rate, particularly given the size of the revenue base that growth came on top of. Overall, Nvidia's revenue rose at a 106% year-over-year pace.

But which of these lightning-fast growers is the better buy? I believe this valuation metric holds the clue.

2027 will be a monster year for both companies

Broadcom has long touted the growth it expects to deliver in 2027 as orders for its custom AI chips ramp up. Likewise, Nvidia informed investors recently that it expects a 70% growth rate in its next fiscal year. Given that we are in the back half of this year, I think it's wise for investors to start considering next year's earnings projections as the best tool to value these stocks.

From this perspective, Nvidia trades at a cheaper valuation than Broadcom.

However, with both stocks below 20 times next year's earnings, both have a huge amount of room for price growth. Given how rapidly these companies are growing, I think a valuation of 30 times forward earnings would be more appropriate. Based on that premise, Nvidia could double, while Broadcom's upside is over 50%.

I think that clearly makes Nvidia the better buy, but I am also a huge fan of Broadcom's stock and believe that it could have a successful year, given how cheap it is right now.

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Keithen Drury has positions in Alphabet, Broadcom, Meta Platforms, and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Broadcom, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.

Broadcom vs. Nvidia: 1 Critical Metric Shows Which Artificial Intelligence (AI) Chipmaker Is the Better Buy After Earnings was originally published by The Motley Fool