Easy AI Investment Options to Pursue in January 2025
In the realm of 2025, the buzzword that's igniting a fervor worldwide is artificial intelligence (AI). As this technological revolution gathers momentum, it has become a significant investment theme. While numerous AI-driven stocks reached new heights in 2024, there's still potential for substantial returns in this burgeoning field.
Two stocks that astute investors might consider are Nvidia (NVDA 2.63%) and Broadcom (AVGO -1.17%) - each with distinctive strengths that make them compelling options. Let's delve into why they merit a closer look.
Cracking the Code with Nvidia
Nvidia has long been a Wall Street darling, thanks to its prowess in the ever-expanding AI computing infrastructure space (AI-optimized hardware and software). The company's third quarter of fiscal 2025 showcased its market dominance, with revenue skyrocketing 94% year over year to an impressive $35.1 billion, driven predominantly by AI-focused data center revenue of $30.8 billion.
The strength of Nvidia lies in two fundamental shifts in computing: the transition from CPU-based coding to GPU-based machine learning and AI algorithms, which demands upgrading an estimated $1 trillion worth of data center infrastructure globally; and the widespread adoption of digital intelligence, giving rise to a multitrillion-dollar industry of AI factories, each requiring tens of thousands of GPUs.
Data centers and enterprises are relying upon Nvidia's Hopper architecture GPUs for running complex AI workloads. Although the company anticipates staggering demand for its next-generation and customizable Blackwell architecture systems to be a primary growth catalyst in 2025, the current Blackwell chips are proving to be in high demand. This supply and demand imbalance implies that Nvidia will enjoy robust revenue momentum and significant pricing power in the coming months.
Moreover, major clients like Salesforce, SAP, and ServiceNow are leveraging Nvidia's AI Enterprise platform to build customized copilots and AI-powered agents. With billions of agents anticipated to be deployed in the near future, this could prove to be a potent long-term growth driver for Nvidia.
Despite its exceptional growth, Nvidia's valuation remains relatively moderate. The stock trades at approximately 54 times trailing-12-month earnings, which is lower than its five-year average price-to-earnings (P/E) multiple of 75.9. Furthermore, its price/earnings-to-growth (PEG) ratio is only 0.23, suggesting that the pace of future growth is stronger than that of multiple expansion.
As the AI revolution is just beginning, Nvidia has a considerable upside potential in the coming years.
Broadcom's Customized AI Advantage
Broadcom has successfully distinguished itself as a top performer in 2024, thanks to its prowess in both customized AI chips and infrastructure software - a strategy that sets it apart from Nvidia's general-purpose GPU approach. By designing custom AI accelerators (XPUs) tailored to the specific requirements of its three major hyperscaler clients, the company has seamlessly integrated itself into their multi-generational AI infrastructure roadmaps. Additionally, Broadcom is utilizing advanced 3-nanometer process technology for next-generation AI chips.
Broadcom's networking solutions are also gaining popularity, driven by its deep understanding of scaling AI clusters from thousands to millions of XPUs. The company expects a rise in resources allocated to networking content from 5% to 10% of that allotted to computation content to 15% to 20%, as customers expand AI clusters from 500,000 XPUs to 1 million XPUs.
Subsequently, Broadcom's management now estimates a serviceable addressable market for its XPUs and networking components to be between $60 billion and $90 billion by 2027, just from three hyperscaler customers.
Broadcom's success in the AI space is evident from its fiscal 2024 revenue, which saw a 220% year-over-year increase in AI revenue to $12.2 billion. AI revenue now makes up nearly 41% of Broadcom's semiconductor revenue.
Broadcom also successfully integrated the data center virtualization software player VMware in a rapid timeframe while improving profitability. VMware's operating margin rose from 30% pre-acquisition to a solid 70% post-acquisition, and Broadcom has already surpassed its three-year schedule for delivering incremental adjusted earnings before interest, taxes, depreciation, and amortization of more than $8.5 billion.
Broadcom's non-AI semiconductor business is also expected to grow at a steady mid-single-digit rate. Although the stock is currently trading at 21.6 times trailing-12-month sales - higher than its five-year average price-to-sales ratio of 11.8 - its explosive growth in the AI business and solid financial footing make this an attractive investment opportunity.
- In the context of 2024, Nvidia's finance performance was remarkable, with its third quarter revenue increasing by 94% year over year to $35.1 billion, primarily driven by AI-focused data center revenue.
- For those interested in investing, the potential returns in the AI field are still substantial, with companies like Nvidia offering solid growth opportunities. The stock, trading at approximately 54 times trailing-12-month earnings, has a lower P/E multiple than its five-year average and a PEG ratio suggesting stronger future growth.
- Broadcom's strategy in investing in customized AI chips and infrastructure software has set it apart in the market. By designing AI accelerators tailored to its major hyperscaler clients and utilizing advanced 3-nanometer process technology for next-generation AI chips, Broadcom has seen a 220% year-over-year increase in AI revenue in fiscal 2024, accounting for nearly 41% of its semiconductor revenue.
- The finance sector should keep an eye on Nvidia and Broadcom in 2024 and beyond, as both companies' prowess in AI and their distinctive strategies make them compelling investment options in the burgeoning AI-driven market.
