Three AI Chip Stocks That Are Cheaper Than Nvidia

Artificial intelligence (AI) frenzy has continued to power the Wall Street rally with major indices like S&P 500 and Nasdaq hitting year-to-date highs. The rally has been mostly driven by gains in large-cap stocks, like Nvidia (NVDA:US), Microsoft (MSFT:US), Alphabet (GOOGL:US), Tesla (TSLA:US), and Apple (AAPL:US).

The success of generative AI has also prompted a strong rally in chip stocks. The PHLX Semiconductor Sector, which tracks the performance of the 30 largest U.S. chipmakers, rose as much as 18% in May to trade at the highest levels since February 2022. 

In this blog post, we take a look at 3 chipmakers that are benefiting from the rapid adoption of generative AI technology, excluding Nvidia which is already up 165% year-to-date. 

Broadcom 

Broadcom (AVGO:US) shares rose about 29% in May as the chipmaker is expected to benefit from the adoption of generative AI technology. The stock hit a fresh record high above the $900 mark before rotating lower to settle around the $800 handle. Compared to the October 2022 low, AVGO shares are up about 80% through Tuesday’s close.

Last week, the company’s stock dipped as FQ2 earnings and subsequent management commentary on the earnings call failed to extend recent gains in this chip stock. CEO Hock Tan said the company expects its AI sales will double in a year. But unlike Nvidia, Broadcom didn’t include the expected boost from AI sales in its guidance for this quarter.

Broadcom sees FQ3 revenue at $8.85 billion, just ahead of the consensus of $8.76 billion. For the second quarter, the company reported an adjusted EPS of $10.32 on revenue of $8.73 billion.

“Broadcom’s second quarter results were driven by demand for next generation technologies from hyperscale, while enterprise and service providers continued to sustain,” said CEO Tan.

“Our third quarter outlook projects year-over-year growth, reflecting continued leadership in networking as we support a measured ramp into large scale AI networks.”

Marvell 

Marvell (MRVL:US) shares have also soared recently amid the AI revolution that is unfolding on Wall Street. Shares in the chipmaker gained over 48% in May after trading near the 2-year lows around the $40 handle. 

In late May, the company reported adjusted earnings per share of $0.31 on revenue of $1.32 billion, just ahead of the Street that was looking for a profit of $0.29 on revenue of $1.3 billion.

For the ongoing quarter, the company guided to revenue of $1.33 billion. However, it was the AI-focused commentary that propelled a sharp rally in the MRVL stock.

“AI has emerged as a key growth driver for Marvell, which we are enabling with our leading network connectivity products and emerging cloud optimized silicon platform,” Marvell CEO Matt Murphy said in the release. 

Marvell designs and sells a set of chips and hardware products that are used for 5G infrastructure, data centers, and networking. The company is expected to benefit from AI adoption as its higher bandwidth data products fit well into the new high-end systems. 

“While we are still in the early stages of our AI ramp, we are forecasting our AI revenue in fiscal 2024 to at least double from the prior year and continue to grow rapidly in the coming years.”

Advanced Micro Devices (AMD)

Advanced Micro Devices (AMD:US) is the only chipmaker that is regarded as capable of challenging Nvidia’s dominance in the data center sector. In early May, the company reported a profit per share of $0.60 on revenue of $5.35 billion, just ahead of the Street at $0.56 on revenue of $5.3 billion. 

Sales fell 9% on the back of the 30% fall in PC shipments in the first quarter, according to IDC. However, AMD’s CEO Lisa Su said she believes the first quarter was the trough as far as the company’s client processor business is concerned.

As a result, AMD expects to see “growth in the second half of the year as the PC and server markets strengthen.” AMD reported $1.295 billion in data center sales for the first quarter.

“We launched multiple leadership products and made significant progress accelerating our AI roadmap and customer engagements in the quarter. Longer-term, we see significant growth opportunities as we successfully deliver our roadmaps, execute our strategic data center and embedded priorities and accelerate adoption of our AI portfolio,” Su said in a press release.

Earlier this year, AMD presented its first Ryzen 7000 series chip that is based on the built-in AI engine. A recent report from Bloomberg News said AMD has partnered with Microsoft (MSFT:US) with the aim of boosting its expansion into AI processors. While Microsoft will help with the supply of critical components needed for AI chips, the chipmaker is expected to help the tech titan to develop its own in-house AI chips.

AMD shares gained 32% in May and are up a further 5% this month.

Final Thoughts

Chip stocks have enjoyed a great couple of weeks after Nvidia offered robust guidance for this quarter on the expected massive boost from AI sales. Shares of AMD, Marvell, and Broadcom all rallied but still lag behind Nvidia, whose stock is up 165% YTD.

While Nvidia’s forward price-to-earnings ratio is 52.08, AMD stock is indicated cheaper based on this valuation metric of 43.86. Similarly, forward P/E ratios for MRVL and AVGO stand at 37.45 and 18.73.

Congress members, like Josh Gottheimer, Ro Khanna and Senator Tommy Tuberville have all recently reported transactions that involve the purchase of AMD, MRVL, and AVGO shares.