I have been hesitant to issue a Buy rating for Nvidia (NVDA), the leading AI chip company, due to an impending revenue decline. However, my analysis shows that the stock’s valuation is likely to remain stable and grow over at least the next 12 months. By contrast, Broadcom (AVGO), a competitor to Nvidia, is excessively overvalued, leaving me neutral on it despite the company’s operational strengths.
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Broadcom Is Challenging Nvidia in AI Chips
I am neutral on Broadcom due to its valuation, even though the company is harnessing application-specific integrated circuits (ASICs) and networking solutions to challenge Nvidia’s dominant position in AI infrastructure with its graphics processing units (GPUs) and CUDA software ecosystem. Custom ASICs are optimized for specific workloads, offering higher efficiency and tailored solutions to hyperscalers such as Google (GOOGL) (GOOG), Meta (META) and OpenAI.
Moreover, Broadcom is complementing its custom ASICs with advanced networking solutions, including its Jericho3-AI Ethernet fabric. These networking solutions enhance data transfer speeds, reduce latency in AI data centers, and integrate seamlessly with hyperscale infrastructure.
In Fiscal 2024, Broadcom’s AI-related revenue increased by 220% year-over-year, driven by its custom ASICs and networking solutions. However, unlike Nvidia’s CUDA platform, Broadcom does not have a unified software ecosystem, which somewhat limits its long-term market potential.
Additionally, ASICs require higher upfront investments compared to GPUs, which are cheaper to produce and more versatile, as provided by Nvidia.
In my opinion, Broadcom is well-positioned to capitalize on future growth in use-case-specific AI chips and networking solutions for data centers, but the market has already priced in this future growth well ahead of time.
Broadcom Is Too Heavily Overvalued to Invest In
For my analysis, I am considering a period of only two years for Broadcom, as the semiconductor industry is highly cyclical. I view AVGO stock as heavily overvalued at present, which forms the basis of my neutral near-term outlook.
By January 2027, I estimate that the company will have $72 billion in trailing 12-month revenue. Furthermore, I expect Broadcom to expand its net margin in 2025 and 2026, as temporary headwinds—such as acquisition-related costs and increased interest expenses—diminish. To be conservative, I estimate a net margin of 50% by January 2027, aligning with historical cyclical trends.
With a net income of $36 billion and outstanding shares of approximately 4.5 billion, the company would likely have a trailing 12-month earnings per share (EPS) of $8 by December 2026. Historically, during profitability peaks, the stock has traded at a price-to-earnings (P/E) ratio ranging from 40 to 20. I will use the midpoint of 30 for my terminal multiple.
Based on this model, my fair price target for Broadcom in January 2027 is $240. Since the current stock price is $231.50, the market appears to have already priced in the next two years of the company’s growth.
What Is the Target Price for Broadcom Stock?
On Wall Street, Broadcom has a Strong Buy consensus rating, based on 23 Buys, three Holds, and zero Sells. However, the average AVGO price target of $234.38 implies just a 0.8% upside potential over the next 12 months. This consensus price target reaffirms my Hold rating on Broadcom stock at its current valuation.
Nvidia Remains a Shrewd AI Investment for Now
In contrast to Broadcom—which is attempting to capture niche portions of the AI market—Nvidia is the undisputed leader in AI infrastructure compute. At present, Nvidia controls up to 95% of the AI chip market, and this dominance is expected to remain above 80% for at least the next 18 months. For further context, Broadcom’s data center revenue could reach $17 billion in 2025, compared to a possible $200 billion for Nvidia.
However, Nvidia’s robust growth—fueled by intense demand for its GPUs to build out AI data centers—will not last indefinitely. My forecast suggests that the stock will continue to rise over the next two years, though volatility is likely to follow as the company faces a potential revenue decline when demand for AI infrastructure begins to taper.
At the moment, I believe Nvidia stock appears reasonably valued. I recently purchased a moderate stake, aiming to benefit from ongoing AI momentum over the next 18 months or so. I have set my take-profit price at $200 and believe the stock could reach this level within 12 months. Since the current price is $136.30, this indicates a potential 48.2% upside in one year.
Nvidia Is Reasonably Valued despite Recent Exuberance
My current valuation model for Nvidia forecasts $235 billion in trailing 12-month revenue by January 2027, with a net income margin of 57.5% and approximately 24.5 billion outstanding shares. These figures yield a net income of $135.125 billion and an EPS of $5.50.
I anticipate that the company’s P/E ratio will contract over the next two years as its growth slows. Given the midpoint of Nvidia’s trailing 12-month and forward P/E ratios is about 50, I am using that as my terminal multiple. The result is a January 2027 price target of $275. With the current price at $136.30, this suggests a compound annual growth rate of approximately 41.9% over the next two years.
Nonetheless, because a revenue decline may be on the horizon near January 2027, market sentiment could shift earlier. That is why I have set a more defensive one-year price target of $200.
What Is the Nvidia Price Prediction for 2025?
On Wall Street, Nvidia has a Strong Buy consensus rating based on 37 Buys, three Holds, and zero Sells. The average NVDA price target of $177.08 implies a potential 22.6% upside over the next 12 months. The high estimate is around $20 above my own one-year target of $200, which aligns with my bullish stance on the stock.
Conclusion: Nvidia Is a Better Investment than Broadcom
Based on my analysis, Nvidia is currently a far better investment than Broadcom. While Broadcom is operationally strong, its stock appears excessively priced, suggesting little room for alpha over the next two years. Nvidia, on the other hand, is reasonably valued and positioned for strong annual returns over the next 12 months or more.