In This Article:
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Recent earnings reports from AI's major players indicate that infrastructure spending remains a top priority.
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While this bodes well for Nvidia and AMD, another industry darling is positioned to benefit from these tailwinds.
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Broadcom's AI business is thriving thanks to cloud hyperscalers, suggesting the stock could be an interesting buy.
It's been a hectic year for investors. Less than a month ago, the S&P 500 was down as much as 15% on the year while the tech-heavy Nasdaq Composite fared even worse -- dropping by as much as 21%.
Over the last several weeks, however, the capital markets have shown some signs of resiliency and gradually started to rebound. As of this writing, the S&P 500 is now near breakeven on the year while the Nasdaq is down by just 3%. One of the contributing factors to these recent jolts has been quarterly earnings. Throughout April, companies have reported financial results for the first quarter of 2025. And for the most part, investors appear to be pleased with where things stand.
In particular, artificial intelligence (AI) companies not only reported strong financials in Q1, but their outlooks remained quite robust. Cloud hyperscalers Amazon, Microsoft, and Alphabet maintained their capital expenditure (capex) guidance for the year, while Meta Platforms actually raised its AI infrastructure outlook. Indeed, these are positive tailwinds for GPU players such as Nvidia and Advanced Micro Devices.
While Nvidia is scheduled to report earnings on May 28, I actually have my eyes on another semiconductor stock that could be the better buy this month. Let's explore why Broadcom (NASDAQ: AVGO) looks like a great under-the-radar opportunity right now.
Among cloud hyperscalers and Meta, AI infrastructure spend is forecast to be above $300 billion just this year. While much of that spend will be allocated toward GPUs developed by Nvidia and AMD, each of the "Magnificent Seven" players I referenced above are also building their own in-house chips. Custom silicon is a unique solution that Broadcom offers, hence rising AI capex from these players is also a positive sign for the company.
In fact, during the earnings call back in March, Broadcom CEO Hock Tan said that the company beat its AI revenue target "due to stronger shipments of networking solutions to hyperscalers." As Amazon, Microsoft, and Alphabet continue to outfit data centers with AI GPUs and networking equipment, it's highly likely that Broadcom is going to touch this infrastructure in some capacity.