Semiconductor Showdown: Broadcom vs. AMD—Which Stock to Buy?
The past year has proven successful for semiconductor companies, highlighted by the PHLX Semiconductor Sector index achieving a 21% increase. However, not all semiconductor stocks have enjoyed the upward momentum.
For instance, shares of Broadcom (NASDAQ: AVGO) have seen a remarkable rise of 115% over the past year, while Advanced Micro Devices (NASDAQ: AMD) experienced a decline of 14%. Both firms are crucial players in the semiconductor industry, producing chips utilized in personal computers (PCs), smartphones, gaming consoles, and data centers.
Analyzing Advanced Micro Devices (AMD)
Although 2024 has been challenging for AMD, the outlook for 2025 appears promising due to positive trends in the PC and data center markets. An examination of AMD’s third-quarter 2024 results, released in October, indicates the start of a recovery.
The company posted a quarterly revenue of $6.8 billion, an 18% increase from the previous year. Earnings per share also surged, climbing 31% to $0.92. For the fourth quarter, AMD anticipates a further revenue increase of 22% year over year, projecting $7.5 billion, with analysts forecasting earnings to rise by 41% to $1.09 per share.
Looking ahead to 2025, analysts expect AMD’s earnings to jump by 54%, reaching $5.13 per share, supported by a revenue increase of 27% to $32.5 billion. This optimistic forecast is due in large part to AMD’s data center business, which gained traction throughout 2024 as it attracted more customers seeking graphics processing units (GPUs) for artificial intelligence (AI) tasks.
Originally, AMD anticipated $2 billion in sales of data center GPUs for 2024; however, this estimate has now exceeded $5 billion. By improving its supply chain, AMD expects to meet greater demand for its AI GPUs in 2025. Additionally, CEO Lisa Su notes that PC original equipment manufacturers (OEMs) plan to triple the number of AI-capable Ryzen processors produced in 2025.
Consequently, it’s likely that AMD will increase its stake in the client CPU market. According to Mercury Research, AMD’s market share rose to 23.9% in the third quarter of 2024, a climb of 4.6 percentage points from the previous year. With strong positioning in AI PCs, AMD is set to capture a larger share of this market, which bodes well for its growth.
Overall, AMD has several positive indicators for the coming year, and analysts have set a median 12-month price target of $183 for the stock, indicating a potential upside of 46% from current levels.
The Case for Broadcom
In the realm of AI chips, Broadcom has established a stronger presence than AMD, generating $12.2 billion in revenue last fiscal year from its custom AI processors and networking chips—a staggering increase of 220% from the prior year. Looking ahead, Broadcom anticipates significant long-term growth within the AI sector, estimating its market potential to rise between $60 billion and $90 billion by fiscal 2027.
Broadcom holds a dominant position in the custom processor market, commanding 55% to 60%. If this market grows to $75 billion, as predicted, and Broadcom maintains its 60% share, its AI revenue could soar to $45 billion in three years—an almost fourfold increase compared to fiscal 2024.
The impressive growth of Broadcom’s AI semiconductor business has helped counterbalance declines in its non-AI sector. Specifically, revenue from non-AI semiconductors fell by 23% year over year to $4.5 billion in the fourth quarter of fiscal 2024, contrasting sharply with a remarkable 150% increase in AI semiconductor revenue, totaling $3.7 billion. Encouragingly, Broadcom’s non-AI business appears to have stabilized, with expectations for recovery ahead.
Consequently, Broadcom’s growth outlook for fiscal 2025 is expected to be stronger than in the previous year, ending fiscal 2024 with organic revenue growth of 9% and total revenue of $51.6 billion. The chart below showcases the anticipated growth trajectory.
AVGO Revenue Estimates for Current Fiscal Year data by YCharts
Final Thoughts
Both AMD and Broadcom appear poised for significant growth in 2025 and beyond, suggesting they could be worthwhile investments. However, Broadcom currently trades at a higher valuation than AMD, reflecting its exceptional performance over the past year, as illustrated in the chart below.
AVGO PE Ratio data by YCharts
Broadcom’s sales and earnings multiples significantly exceed those of AMD. While Broadcom’s strong position in the custom AI processor market justifies its premium valuation, AMD is projected to achieve more rapid growth in the coming year. Therefore, investors looking for a promising growth stock at a compelling valuation might prefer AMD, which could rebound and thrive in 2025.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
