“Nvidia is no longer the only choice,” as AVGO steals the spotlight from NVDA stock

Nvidia (NVDA) has dominated the AI semiconductor spotlight over the past year, hitting trillion-dollar milestones along the way.

But beneath the surface, a shift in market leadership appears to be emerging in favor of Broadcom (AVGO), a chipmaker with a more diversified revenue base.

“Nvidia is no longer the only choice,” market analyst The Long View wrote, pointing to the relative outperformance of Broadcom versus Nvidia since the start of the year.

A Bloomberg chart tracking normalized performance shows the two stocks moving in lockstep through mid-summer before diverging sharply: Broadcom surged in August while Nvidia slipped, widening the gap. Broadcom shares are now up 44% year-to-date, roughly double Nvidia’s 21% gain.

The trend suggests investors may be rotating toward a more balanced play on AI and semiconductors, as Nvidia shows signs of fatigue at a market value above $4.3 trillion.

Broadcom’s advantage is its exposure to both chips and software. Thanks to its 2023 acquisition of VMware, infrastructure software revenue jumped 25% year-over-year to $6.6 billion in the most recent quarter.

That helped drive record fiscal third-quarter sales of $15.95 billion, up 22% from a year earlier.

CEO Hock Tan credited the results to three key growth engines: AI accelerators, networking, and VMware. Investors have also highlighted Broadcom’s emerging leadership across several key measures beyond share price performance.

The company delivers gross margins of about 67% and a net profit margin near 26%, underscoring the strength of its underlying business. Its free cash flow growth has also accelerated over the past year.

Broadcom becomes “Mag 7” worthy

Broadcom is making a strong case for inclusion in the coveted “Magnificent 7,” an elite group of mega-cap technology and growth stocks dominated by Nvidia (NVDA), Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG), Amazon (AMZN), Meta Platforms (META) and Tesla (TSLA).

While it hasn’t officially joined the ranks, Broadcom has already surpassed Tesla in market value, a reflection of the EV maker’s sluggish year and the chipmaker’s surging influence in the tech sector.

The company’s market capitalization has swelled to nearly $1.58 trillion, making it the world’s seventh-largest public company. Tesla, by contrast, has slipped to 10th place with a valuation of about $1.13 trillion.

According to data from ETF Tracker, Broadcom has become the sixth-largest holding in the Nasdaq 100 — an important milestone because the index is one of the most widely followed benchmarks for technology and growth stocks.

The heavier weighting gives Broadcom more sway over the Nasdaq’s performance and draws additional inflows from index funds and ETFs that track the tech benchmark.