AMD and Broadcom compete in AI chip market

Nvidia leads the market in artificial intelligence (AI) chips, but Advanced Micro Devices (AMD) and Broadcom are also significant players. Both companies are working to gain a share of the AI infrastructure market that Nvidia dominates. AMD is the second-largest producer of graphics processing units (GPUs), which are crucial for AI tasks due to their fast processing speeds. However, AMD only has a 10% to 17% market share, compared to Nvidia's over 80%. One of AMD’s challenges is its software, which is not as developed as Nvidia’s. While AMD's GPUs have been used mostly for AI inference, the company is growing in the central processing unit (CPU) market, which plays an important role in data centers. In contrast, Broadcom focuses on creating application-specific integrated circuits (ASICs) for AI. These custom chips are designed for specific tasks and use less power than GPUs, but they are more expensive and time-consuming to develop. Broadcom also produces components that help manage data flow in AI infrastructure. The company sees a big opportunity in the custom AI chip market, predicting significant revenue growth from its customers. Both AMD and Broadcom reported strong revenue gains recently. AMD’s data center revenue grew by 69% to reach $3.9 billion, while Broadcom's AI-related revenue increased by 77% to $4.1 billion. Despite similar growth rates, Broadcom may have a better long-term opportunity due to its focus on custom AI chips. In terms of stock valuation, AMD is cheaper, trading at a forward price-to-earnings ratio of about 22, while Broadcom is at 28.6. Both stocks are considered solid investments. However, Broadcom’s potential in the custom chip market makes it a more appealing choice for the future.