Better Artificial Intelligence (AI) Stock: Broadcom vs. Marvell Technology

The semiconductor industry has seen impressive stock growth in 2024, with Broadcom (NASDAQ: AVGO) and Marvell Technology (NASDAQ: MRVL) leading the way. Both companies have doubled their stock prices this year, driven by an increased demand for their specialized chips used in AI and networking within data centers.

As of now, Broadcom’s stock is up by an impressive 124%, while Marvell has shown a solid rise of 93%. This raises an important question for investors: which of these two AI stocks is the better buy? Let's delve into the details.

The case for Broadcom

The demand for AI-specific chips, particularly application-specific integrated circuits (ASICs), is growing significantly as cloud providers aim to develop custom chips to lessen their dependency on expensive alternatives like Nvidia. Broadcom is stepping into this space by reportedly manufacturing custom chips for major companies such as Google, ByteDance, and Meta Platforms.

Broadcom's widespread customer base has positioned it favorably in the rapidly expanding market for custom AI processors. The company reported impressive revenue of $12.2 billion from AI chip sales and networking processors in its fiscal 2024, marking a 220% increase from the previous year's $3.8 billion.

Looking ahead, Broadcom estimates that its addressable market for AI will reach between $60 billion and $90 billion by fiscal 2027. The management expressed optimism about gaining a significant share in this area. They expect strong growth based on the current AI revenue of $12.2 billion.

A significant factor working in Broadcom's favor is its strong market share in the ASIC sector, estimated to be between 55% and 60% according to J.P. Morgan. If Broadcom achieves even half of this potential market, its annual AI revenue could soar to between $30 billion and $45 billion.

This potential growth implies that Broadcom's AI revenue could multiply by about 2.5 to 4 times over the next three years, which has led analysts to increase their revenue forecasts for the current and subsequent fiscal years.

Broadcom ended its fiscal 2024 with a total revenue of $51.6 billion, and the projections suggest continued double-digit growth over the next few years. Hence, Broadcom could remain a leading AI stock due to its solid position in the custom AI chip market.

The case for Marvell Technology

Marvell is considered the second-largest player in the ASIC field, holding an estimated market share of about 13% to 15%. The company has been gaining traction as it manufactures custom AI chips for notable firms such as Alphabet, Microsoft, and Amazon.

The demand for Marvell's custom AI processors appears robust as evidenced by its data center revenue, which grew by 98% year-over-year to $1.1 billion in the third quarter of fiscal 2025. While other business segments performed weakly, this growth led to an overall revenue increase of 7% to $1.52 billion.

Encouragingly, Marvell expects its revenue for the current quarter to reach $1.8 billion, which would represent a significant 26% increase year-over-year. Earnings are projected to jump to $0.59 per share, a considerable improvement compared to the 5% increase in its previous quarter performance.

Marvell’s accelerating financial performance reflects the unexpected uptick in its AI business. Initially estimating $1.5 billion in AI revenue this fiscal year, the company now anticipates exceeding that figure due to heightened demand for its chips.

Looking to the next fiscal year, Marvell expects its AI revenue to hit $2.5 billion, with the possibility of exceeding this target as relationships with clients like Amazon deepen.

Management has emphasized securing supply chain capacity to support expected customer growth, indicating their intent to capitalize on rising demand.

This continued growth in the AI segment is anticipated to boost Marvell’s total revenue significantly, with estimates projecting a 41% increase to $8.11 billion in the next fiscal year, following a modest growth of 4% to $5.75 billion currently. Analysts predict this upward momentum will persist beyond the next fiscal year.

The verdict

Both Broadcom and Marvell are poised for impressive growth. However, Marvell is expected to grow at a faster pace due to its smaller size and potential gains in the custom AI chip market.

This faster growth is likely why Marvell carries a higher valuation compared to Broadcom. Investors seeking quicker growth in an AI stock may find Marvell a worthwhile consideration, albeit slightly on the expensive side.

Conversely, Broadcom's leading position and expansive addressable market in AI chips suggest that it could also be a solid investment for those looking for a more affordable option. Both stocks present compelling cases for potential investors interested in the AI semiconductor space.

Semiconductors, Stocks, AI