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

Semiconductor stocks Broadcom (NASDAQ: AVGO) and Marvell Technology (NASDAQ: MRVL) have both seen remarkable growth in 2024, with shares from both companies more than doubling in value. This is largely driven by the surging demand for their application-specific integrated circuits (ASICs) and networking chips, which are crucial for handling artificial intelligence (AI) workloads in data centers.

As of now, Broadcom's stock has increased by 124% this year, while Marvell's stock has risen by 93%. Investors may wonder which of these two AI stocks would be the better option to include in their portfolios after such significant gains. Let's explore both sides.

The Case for Broadcom

The demand for AI-specific ASICs is on the rise as cloud service providers seek to develop custom chips to lessen their dependency on costly semiconductors from companies like Nvidia. Broadcom is well-positioned in this context, reportedly manufacturing tailored chips for major players such as Alphabet's Google, TikTok's parent company ByteDance, and Meta Platforms.

This robust customer base has positioned Broadcom to capitalize on the swiftly expanding custom AI processor market. In fiscal 2024, the company reported revenues of $12.2 billion from sales of custom AI and networking processors. This marks a significant increase of 220% compared to the $3.8 billion generated in fiscal 2023.

Looking ahead, Broadcom anticipates its addressable market for AI-related products to grow to between $60 billion to $90 billion by fiscal 2027. Management noted in their latest earnings call that the company is "very well-positioned to capture a leading market share in this sector" and expects substantial growth from its 2024 AI revenue base.

A major advantage for Broadcom is its dominance in the ASIC market. According to J.P. Morgan, Broadcom holds roughly 55% to 60% of the custom chip market. If the company maintains this share and successfully captures even half of the projected custom AI chip market, its annual AI-related revenue could soar to between $30 billion to $45 billion over the next few years.

This means that Broadcom's AI revenue could grow by 2.5 to 4 times in the next three years, prompting analysts to adjust their expectations for the company's fiscal performance for the current and upcoming years.

Broadcom concluded fiscal 2024 with total revenue of $51.6 billion and an organic revenue growth of 9%, excluding the acquisition of VMware finalized in November 2023. The expectation is for continued revenue growth in the double digits in the coming years, enhancing its status as a key player in the lucrative custom AI chip market.

The Case for Marvell Technology

Marvell is regarded as the second-largest provider in the ASIC market, with an estimated 13% to 15% market share. The company has been gaining traction and is reportedly producing custom AI chips for significant clients including Alphabet, Microsoft, and Amazon.

The demand for Marvell's custom AI processors appears strong, evidenced by a 98% rise in data center revenues for the third quarter of fiscal 2025, which reached $1.1 billion compared to the same period last year. This impressive growth countered weaknesses in other business segments, resulting in an overall revenue increase of just 7% year over year to $1.52 billion.

However, recent outlooks suggest a positive shift. Marvell anticipates revenue guidance of $1.8 billion for the current quarter, marking a 26% increase year over year. The company's earnings per share are projected to grow to $0.59, a notable rise from only a 5% increase from the previous year.<\/p>

This substantial improvement in financial performance is largely attributed to faster-than-expected growth in the AI segment. Although originally expecting $1.5 billion in AI revenue for the fiscal year, Marvell now believes it will exceed this target due to increased demand for its custom AI chips.

Looking forward, the company estimates its AI revenue could reach $2.5 billion in the next fiscal year, with potential for even higher figures due to expanding relationships with clients like Amazon.

The strong growth in the AI segment positions Marvell well, projecting a 41% increase in total revenue to $8.11 billion next year, following a smaller 4% increase this year to $5.75 billion. Furthermore, consensus estimates suggest Marvell's robust growth trajectory will persist beyond next fiscal year.

The Verdict

Both Marvell and Broadcom are poised for impressive growth. However, Marvell is predicted to experience growth at a faster rate, attributable to its smaller size and capacity for capturing more market share in the custom AI chips sector.

This potential for quicker growth is reflected in Marvell's higher valuation compared to Broadcom. Thus, investors seeking an AI stock with potential for rapid growth might consider Marvell, despite its somewhat elevated valuation relative to Broadcom.

Nonetheless, Broadcom's established market position and significant addressable market in AI chips suggest that it remains a sound investment choice, especially for those preferring a slightly more affordable option in comparison.

AI, Stocks, Growth