Broadcom’s Future $100 Billion Custom Chip Business Is Your Sign to Buy Now

Few companies will go through as much of a transformation as Broadcom (NASDAQ: AVGO) will over the next year. Currently, it’s a large tech company with countless products under its roof, but one is about to become far more important than any other offering: custom AI chips. Broadcom (and the market) are incredibly bullish on this capability, and the company could become a $100 billion business next year.

Considering that Broadcom’s revenue over the past 12 months was $68 billion and custom AI chips were only a fraction of that total, everything is about to change for Broadcom, and now is the perfect time to buy.

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Custom AI chips are rising in popularity

Nvidia (NASDAQ: NVDA) currently dominates the AI computing market. Its GPUs are well known to be the best general-purpose chips available, and there’s not much that will change that in the future. However, GPUs are expensive and not cheap to run. This stems from the fact that they are designed to run a wide variety of workloads. However, that capability is wasted if the GPU sees one type of workload throughout its service life.

Instead, companies are starting to partner with Broadcom to design an application-specific integrated circuit (ASIC) tailored to run a single type of workload. This provides far greater cost-effectiveness than GPU-based training and inference, though some trade-offs are required to achieve these results.

The most famous example of a Broadcom product is Google’s Tensor Processing Unit (TPU). Broadcom and Google have long partnered to design and build these units, and the success of the TPU has caused several other AI hyperscalers to partner with Broadcom to create their own custom chip. These take a while to design and prepare for manufacturing, but there is a massive wave of clients whose custom chips will become available later this year and throughout 2027, which is driving the massive increase.

During Q1, the division that custom AI chips are accounted for delivered 106% year-over-year growth to $8.4 billion, but there are also other products included in that total. So, it’s pretty safe to say that current annual sales of custom AI chips are likely below $30 billion. However, by the end of next year, management believes that figure could be above $100 billion. That’s explosive growth, and if that pans out, Broadcom could have incredible returns. As a result, I think it’s a top AI stock to buy today.

Should you buy stock in Broadcom right now?

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Keithen Drury has positions in Broadcom and Nvidia. The Motley Fool has positions in and recommends Broadcom and Nvidia. The Motley Fool has a disclosure policy.

Broadcom’s Future $100 Billion Custom Chip Business Is Your Sign to Buy Now was originally published by The Motley Fool