In the world of mega-cap semiconductor stocks, two giants stand out: Nvidia (NVDA) and Broadcom (AVGO). Both companies have established themselves as dominant forces in the semiconductor industry, each with unique strengths and growth drivers. Nvidia, widely known for its cutting-edge graphics processing units (GPUs) and leadership in artificial intelligence (AI), has experienced massive growth, fueled by increasing demand for AI applications and its robust GPU lineup. On the other hand, Broadcom has carved out a powerful position in the market through its diverse portfolio of semiconductor solutions, including high-performance networking, storage, and broadband components, along with its lucrative software business.
In this article, we will analyze the recent financial performance of Nvidia and Broadcom, exploring their growth prospects, valuation metrics, and analyst ratings. With Nvidia set to roll out its highly anticipated Blackwell products and Broadcom continuing to expand its leadership in infrastructure software, the decision between these two stocks isn’t straightforward. We’ll dive into which stock offers the most compelling opportunity for investors seeking exposure to the booming semiconductor industry. By the end, you’ll have a clearer sense of whether Nvidia or Broadcom is the better buy for your portfolio.
The Case For Nvidia Stock
Based in Santa Clara, California, NVIDIA Corporation (NVDA) is a premier technology firm known for its expertise in graphics processing units and artificial intelligence solutions. The company is renowned for its pioneering contributions to gaming, data centers, and AI-driven applications. Its market cap currently stands at $2.52 trillion.
Nvidia shares have experienced significant selling pressure recently, beginning with the release of its Q2 earnings report on Aug. 28 and intensifying due to a broader market pullback amid growing fears of a U.S. recession. Nevertheless, Nvidia shares have risen about 107.6% year-to-date, significantly outperforming the broader market.
Recent News for NVDA Stock
On Aug. 27, NVIDIA unveiled NVIDIA NIM Agent Blueprints, a collection of pre-trained, customizable AI workflows designed to provide millions of enterprise developers with comprehensive software tools for creating and deploying generative AI applications. These applications cover canonical use cases like customer service avatars, retrieval-augmented generation, and virtual screening for drug discovery.
Nvidia Stock Falls as Q3 Revenue Guidance Disappoints
On Aug. 28, Nvidia reported Q2 results that topped expectations. However, shares of Nvidia slumped over 6% in the subsequent trading session as the chip designer’s Q3 revenue forecast fell short of the highest expectations.
In the second quarter of fiscal 2025, the company achieved a record revenue of $30.0 billion, marking a 15% increase from the previous quarter and a 122% rise from the previous year, surpassing Wall Street’s consensus estimate of $28.73 billion. Data center revenue, accounting for about 88% of the total, hitting a record $26.3 billion in Q2, increasing 16% from the previous quarter and 154% from a year ago. This figure, which surpassed estimates of $25.08 billion, was driven by strong demand for NVIDIA Hopper, GPU computing, and networking platforms.
Compute revenue more than doubled, growing over 2.5 times, while networking revenue also saw significant growth, increasing more than two-fold from the previous year. Notably, cloud service providers accounted for about 45% of data center revenue, while over 50% came from consumer, Internet, and enterprise companies. During the Q2 earnings call, management highlighted that customers are rapidly increasing their purchases of the Hopper architecture and are preparing to adopt Blackwell. Based on this, there is a high likelihood that shipments of the H200 will increase in Q3, which should sustain NVDA's top-line growth nicely until Blackwell shipments begin to ramp up later in the year.
“Hopper demand remains strong, and the anticipation for Blackwell is incredible,” said Jensen Huang, founder and CEO of Nvidia. “NVIDIA achieved record revenues as global data centers are in full throttle to modernize the entire computing stack with accelerated computing and generative AI.”
It’s worth mentioning that Blackwell production is set to commence in the fourth quarter and will extend into FY26. The company anticipates a robust Q4 rollout for Blackwell, expecting to generate several billion dollars in revenue. The rumored delay is likely tied to enhancements made to improve Blackwell’s production yields. In summary, Nvidia is anticipated to see a significant uptick in Hopper shipments and revenues in both Q3 and Q4, with revenues in Q4 expected to receive an additional boost from Blackwell sales.
Gaming revenue for the period rose 16% year-over-year to $2.9 billion. Automotive revenue increased by 37% year-over-year to $346 million, while professional visualization revenue grew 20% year-over-year to $454 million. Its adjusted earnings per share were reported at $0.68, surpassing analysts’ expectations by $0.04.
The only aspect of the second quarter report that might slightly concern investors is the company’s margins. Adjusted gross margin for Q2 was 75.7%, marking a decline of 3.2 percentage points from the previous quarter. However, it’s important to note that the dip in gross margin was due solely to inventory provisions for low-yielding Blackwell material. Of course, Nvidia is not experiencing any pricing pressure, as Advanced Micro Devices (AMD) has not been able to increase its volumes sufficiently to meet the surging demand for GPUs. As production costs for Blackwell products stabilize, the current margin compression is expected to lessen, resulting in a more stable gross margin and potentially enhancing shareholder returns.
The company returned $15.4 billion to shareholders through share repurchases and cash dividends during the first half of fiscal 2025. It offers an annualized dividend of $0.04 per share, resulting in a forward yield of 0.04%. Furthermore, the board approved a substantial $50 billion share repurchase authorization, which supplements the remaining $7.5 billion from previous authorizations.
For the third quarter of fiscal 2025, management expects revenue to be $32.5 billion, plus or minus 2%. Also, the outlook indicates that margin pressures will likely continue, with an expected adjusted gross margin of 75.0%, subject to a variance of plus or minus 50 basis points.
Nvidia’s Q2 earnings report garnered significant support from the analyst community, with a slew of brokerages, including JPMorgan, Wells Fargo, BofA, and Morgan Stanley all raising their price targets on the stock.
Analysts tracking Nvidia forecast an 81.58% year-over-year increase in its earnings to $0.69 per share for the current fiscal Q3 of 2025, with revenue expected to rise 81.63% year-over-year to $32.91 billion. For FY25, analysts anticipate NVDA’s EPS and revenue to increase by 119.25% and 106.16% year-over-year, reaching $2.84 and $125.6 billion, respectively.
In terms of valuation, the stock is trading at 36.19 times the consensus earnings estimate for FY25, which is above the sector median of 22.94x, yet remains below its five-year average of 47.23x.
Nvidia stock has a consensus “Strong Buy” rating on Wall Street. Among the 39 analysts covering NVDA, 34 recommend a “Strong Buy,” two suggest a “Moderate Buy,” and three assign a “Hold” rating. The mean target price for NVDA stock is $149.22, indicating an upside potential of about 45.1% from its Friday closing price.
The Case For Broadcom Stock
With a market capitalization of about $637.6 billion, Broadcom Inc. (AVGO) specializes in designing, developing, and supplying a range of semiconductor devices globally, focusing on complex digital and mixed-signal complementary metal oxide semiconductor-based devices and analog III-V-based products.
Year-to-date, Broadcom shares have risen 22.7%, surpassing the S&P 500 Index’s ($SPX) gain of 13.4%, yet falling short of NVDA’s performance over the same period.
Recent News for AVGO Stock
On Aug. 28, Broadcom unveiled Rally Anywhere, the on-premises version of Rally, its top-tier enterprise agility platform. Tailored to the specific requirements of global organizations, Rally Anywhere equips teams to plan, prioritize, manage, track, and measure operations at every organizational level. This ensures the delivery of maximum customer value while adhering to stringent data sovereignty policies and elevated security demands.
On Aug. 26, Hitachi Vantara and Broadcom unveiled a powerful new private and hybrid cloud solution. This collaborative solution combines Hitachi Vantara’s Unified Compute Platform (UCP) RS with VMware Cloud Foundation, aiming to help organizations manage the challenges of vast data proliferation and increasing demands of AI. Integrating top-tier automation and software-defined services with proven enterprise infrastructure allows organizations to modernize their setups for enhanced performance and scalability. This reduces total ownership costs, energy use, and carbon footprint and contributes to a more sustainable planet while increasing data infrastructure efficiency.
Broadcom Stock Slumps as Fiscal Q4 Forecast Underwhelms
Last Friday, Sept. 6, shares of Broadcom plunged over 10% after the semiconductor and software giant issued weaker-than-expected Q4 revenue guidance. At the same time, the company’s top and bottom lines for its fiscal Q3 topped Wall Street's estimates.
Broadcom’s consolidated revenue advanced 47% year-over-year to $13.1 billion in the third quarter, beating expectations by $110 million. This solid performance was driven by three key factors: first, AI revenue continues to increase significantly; second, VMware bookings are accelerating; and third, non-AI semiconductor revenue has stabilized.
Revenue from the semiconductor solutions segment reached $7.3 billion, accounting for 56% of total revenue in the quarter, marking a 5% increase year-over-year. Gross margins for this segment were around 68%, a decrease of 270 basis points year-over-year, primarily due to a higher mix of custom AI accelerators. Management indicated that the company has reached the bottom in non-AI markets and anticipates a recovery in Q4.
Revenue from the infrastructure software segment was $5.8 billion, a 200% increase year-over-year, primarily driven by VMware’s contribution and accounting for 44% of total revenue. Notably, the company continues to reduce costs in VMware, lowering VMware spending to $1.3 million in Q3 from $1.6 million in Q2. As a result, the segment’s gross margins reached 90% for the quarter.
Adjusted EBITDA totaled $8.2 billion, with adjusted EBITDA margins expanding to 62.9%. Also, GAAP operating margins continued to expand sequentially to 32.4%, driven by a substantial 700 basis point increase in the infrastructure software segment and an 80 basis point expansion in the semiconductor solutions segment. The strong margin performance enabled the company to report an adjusted EPS of $1.24, surpassing consensus estimates by $0.03.
In Q3, the company generated $4,963 million in cash from operations and incurred $172 million in capital expenditures. Notably, the company distributed $2.5 billion in cash dividends to shareholders during the quarter. Broadcom also announced a quarterly dividend of $0.53 per share, payable on Sept. 30 to shareholders of record as of Sept. 19. Shares of AVGO currently yield a dividend of 1.55%, roughly in line with the sector median of 1.58%. Broadcom has raised its dividend for 13 consecutive years and continues to do so.
Looking ahead to the fourth quarter, Broadcom anticipates revenue of $14 billion, short of the estimated $14.13 billion. Adjusted EBITDA is expected to be approximately 64% of total revenue.
“Broadcom’s third-quarter results reflect continued strength in our AI semiconductor solutions and VMware. We expect revenue from AI to be $12 billion for fiscal year 2024 driven by Ethernet networking and custom accelerators for AI data centers,” said Hock Tan, President and CEO of Broadcom. “The transformation of VMware continues to progress very well. The integration of VMware is driving adjusted EBITDA margin to 64% of revenue as we exit fiscal year 2024.”
Analysts generally responded positively to the company’s earnings report, with JPMorgan, Goldman Sachs, and Morgan Stanley all increasing their price targets for the stock.
Wall Street forecasts suggest that AVGO is expected to see a 44% year-over-year increase in revenue, reaching $51.58 billion in fiscal 2024, with earnings projected to grow 14.80% year-over-year to $4.85 per share.
In terms of valuation, the stock is currently trading at 28.24 times forward earnings, which exceeds both the sector median of 22.94x and its own five-year average of 18.36x.
Analysts have a consensus rating of “Strong Buy” on Broadcom stock, with a mean target price of $190.51, which indicates an upside potential of about 39% from the stock’s Friday close. Out of 32 analysts covering the stock, 29 recommend a “Strong Buy,” and the remaining three give a “Hold” rating.
NVDA vs. AVGO: Which Mega-Cap Semiconductor Stock is a Better Buy?
In summary, while both Nvidia and Broadcom are positioned for upside, my preferred pick is undoubtedly Nvidia. NVDA exhibited stronger growth rates in the most recent quarter and, more crucially, is expected to achieve triple-digit growth in both its top and bottom lines for the fiscal year. Also, it’s evident that both companies are returning value to shareholders, with AVGO focusing more on dividends and NVDA prioritizing buybacks. In addition, while Broadcom may appear relatively cheaper from a valuation perspective, I believe NVDA’s premium is justified, especially considering the significant upcoming catalyst of the Blackwell products rollout. Finally, although both stocks are rated “Strong Buy,” NVDA offers a slightly greater percentage of upside potential relative to its average price target.
On the date of publication, Oleksandr Pylypenko did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
