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The artificial intelligence (AI) rush is far from over, and it is continuing to evolve. As a result, investors continue to look for dynamic tech stocks with the potential to benefit from AI in the long run and generate substantial returns.
Two such top tech players that have seen rapid growth in the last few years are semiconductor companies Qualcomm (QCOM) and Broadcom (AVGO). In 2024, AVGO stock gained 113.6%, while QCOM stock surged 9.5%, compared to the tech-heavy Nasdaq Composite Index’s ($NASX) 30.7% gain.
The rapid expansion of data centers, 5G, the Internet of Things (IoT), and other high-growth markets fueled by AI presents a significant growth opportunity for both. However, understanding each company’s strengths and weaknesses will help determine the right growth stock to invest in this year.
The Case for Qualcomm Stock
Qualcomm is a key player in wireless technology and semiconductor innovation. It has a strong presence in 5G, IoT, automotive technology, and other rapidly expanding markets.
Qualcomm primarily operates in two business segments. The first segment, Qualcomm CDMA Technologies (QCT), is in charge of developing and selling integrated circuits (ICs) and system software for mobile devices, automotive, networking, and IoT applications. It represents the lion’s share of Qualcomm’s revenue.
In fiscal 2024, the QCT segment generated $33.2 billion in revenue, a 9% increase. While IoT chip sales fell 9% for the year, a 55% increase in automotive chip sales and a 10% increase in handset chip sales offset the decline.
The Qualcomm Technology Licensing (QTL) segment specializes in licensing intellectual property (IP) related to wireless communication technologies. Revenue for the segment increased by 5% in fiscal 2024. Total revenue for the full fiscal year increased 9% year-over-year to $38.9 billion, while adjusted earnings per share (EPS) increased 21% to $10.22.
The company has launched its next-generation AI-powered Snapdragon X series for personal computers and the Snapdragon 8 Gen 3 for smartphones in 2024. It expects these new AI-powered products to help it reach a total addressable market of $900 billion by 2030. Besides being a growth stock, Qualcomm is known for its commitment to rewarding shareholders. It pays an attractive yield of 2.14%, which is higher than the technology sector average of 1.37%.
Furthermore, the company has increased its dividends for the past 22 years. Once it hikes its dividends for 25 years in a row, it will earn the title of a Dividend Aristocrat, indicating that it is a reliable dividend stock. Plus, its low forward payout ratio of 27.6% ensures that dividend payments are sustainable, leaving room for growth.
Qualcomm's free cash flow remains strong, enabling it to invest in R&D and return capital to shareholders. In fiscal 2024, Qualcomm generated $11.2 billion in free cash flow, which allowed it to pay $3.6 billion in dividends and $4.1 billion in share repurchases.
Qualcomm’s dominance in 5G technology, combined with its diversified applications in automotive and IoT, positions it for long-term growth. Analysts expect revenue and earnings to increase by 9.24% and 9.2% in fiscal 2025. Revenue and earnings are further expected to rise by 6.6% and 9.6% in fiscal 2026. Trading at 9.2x forward 2025 earnings, Qualcomm stock appears to be a reasonable buy now.
Is QCOM Stock a Buy, Hold or Sell?
Overall, on Wall Street, QCOM stock is a “Moderate Buy.” Out of the 32 analysts that cover the stock, 16 rate it a “Strong Buy,” one rates it a “Moderate Buy,” 14 rate it a “Hold,” and one rates it a “Strong Sell.” Its average target price of $204.69 suggests upside potential of 28.6% over current levels. Its high target price of $270 implies potential upside of 69.7% over the next 12 months.
The Case for Broadcom Stock
Broadcom, like Qualcomm, is a major player in the semiconductor and infrastructure software industries. It is a leading designer, developer, and supplier of semiconductor and software solutions. Broadcom’s stock has returned an impressive 2,128.9% in the last decade. From $6.9 billion in fiscal 2015 to $51.6 billion in fiscal 2024, revenue growth has been staggering.
In July 2024, Broadcom completed a 10-for-1 forward stock split to make the company’s shares more accessible to employees and investors. Let’s find out if the stock is a good buy this year.
In the fourth quarter of fiscal 2025, semiconductor solutions revenue increased 12% year-over-year. For the full fiscal 2024, the segment’s revenue of $30.1 billion was driven by AI revenue increase of 220% to $12.2 billion.
The company has been working on expanding its other segment, the infrastructure software segment, which accounted for 41% of total revenue in the fourth quarter. Broadcom acquired VMware in 2023 solely for this reason, and the segment revenue soared 196% year-over-year in Q4 and 181% for the full year. In fiscal 2024, net revenue increased 44% year-over-year to $51.6 billion, while adjusted diluted earnings grew by 15.4% to $4.87 per share.
Broadcom is also a dividend stock, with a yield of 1.03%, compared to the tech sector average of 1.37%. The company generated $21.9 billion in free cash flow, an increase of 10% year-over-year. This growth enabled it to increase its quarterly dividends by 11%, to $0.59 per share in fiscal 2025. It also marked the company’s fourteenth consecutive annual dividend increase. Furthermore, it has a low forward payout ratio of 30.9%, implying that dividends are currently sustainable.
On the balance sheet, the company had $9.3 billion in cash and cash equivalents at the end of fiscal 2024. The company expects a strong start to fiscal 2025, with 22.7% revenue growth in the first quarter. Adjusted EBITDA could equal 66% of projected revenue.
Analysts covering Broadcom expect revenue and earnings to grow by 18.6% and 30.1%, respectively, in fiscal 2025. Furthermore, revenue and earnings are expected to increase by 15.1% and 20.07%, respectively, in fiscal 2026.
Is AVGO Stock a Buy, Hold, or Sell?
AVGO stock is trading at 36 times forward 2025 earnings, which seems pricey. However, Wall Street analysts generally have a positive outlook on Broadcom stock owing to its diversified business model, strong cash flow, and growth opportunities in 5G and AI.
On Wall Street, AVGO stock is a “Strong Buy.” Out of the 33 analysts that cover the stock, 30 rate it a Strong Buy,” and three say it is a “Hold.”
Based on AVGO’s mean target price of $242.24, the stock has potential upside of 5.6% from current levels. Plus, its high price estimate of $300 indicates the stock could gain as much as 30.8% in the next 12 months.
Which AI Stock Is the Better Buy Now?
Qualcomm is maintaining its position as the wireless communication leader, while Broadcom is rapidly growing in both the hardware and software markets, making them both attractive investment opportunities in the tech space. However, if I had to pick one, I’d go with Broadcom.
Broadcom’s dual focus on semiconductors and infrastructure software, combined with strategic acquisitions, positions the company for long-term growth in high-demand markets like 5G, data centers, and enterprise software. The company’s mix of semiconductor and software products reduces reliance on any single market segment, which is why analysts also predict more growth from Broadcom in the coming years, making it the better buy for 2025.
