Artificial intelligence (AI) will eventually reshape most industries by either eliminating the need for human workers or boosting worker productivity. Analysts generally agree the transformation will happen in phases. They define and ennumerate those phases differently, but infrastructure companies are always the first to benefit.
Training machine learning models and running inference on AI applications is contingent upon powerful semiconductors and networking hardware. As a result, chipmakers Nvidia (NASDAQ: NVDA), Arm Holdings (NASDAQ: ARM), and Broadcom (NASDAQ: AVGO) have already benefited from AI adoption. Year to date, Nvidia stock has surged 160%, Arm stock has increased 80%, and Broadcom stock has climbed 49%. Meanwhile, the S&P 500 (SNPINDEX: ^GSPC) has advanced 18%.
However, Wall Street believes the leaderboard will look different over the next 12 months. Listed below are the median price targets (and implied upside) for all three stocks as of Aug. 25.
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Nvidia: $144 per share (11% implied upside)
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Arm: $135 per share (1% implied downside)
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Broadcom: $196 per share (18% implied upside)
Wall Street actually sees downside where Arm stock is concerned. And while analysts expect the other two semiconductor stocks to produce positive returns, Broadcom’s median price target implies more upside.
1. Nvidia
Nvidia graphics processing units (GPUs) are the industry standard in accelerating complex data center workloads like scientific computing and artificial intelligence (AI) applications. “Nvidia’s chips underpin all of the most advanced AI systems, giving the company a market share estimated at more than 80%,” according to The Wall Street Journal.
Nvidia also has monetization opportunities beyond GPUs. The company recently introduced its first data center server chip, called Grace, and CEO Jensen Huang says it’s ramping toward a multibillion-dollar product line. Nvidia also sells InfiniBand and Ethernet networking platforms. That portion of its business recently achieved a revenue run rate exceeding $12 billion annually.
Finally, Nvidia has further expanded its ability to monetize AI by delving into software and services. Nvidia AI Enterprise is a suite of subscription software that streamlines the development and deployment of AI applications. And DGX Cloud brings together Nvidia hardware and software to create an end-to-end AI-as-a-service offering. Collectively, Nvidia’s software and services segment recently achieved a revenue run rate of $1 billion.
Looking ahead, Wall Street expects the company’s non-GAAP earnings to grow at 39% annually through fiscal 2027 (ends January 2027). Compared to that estimate, its current valuation of 71.7 times adjusted earnings lands somewhere between cheap and expensive.
2. Arm Holdings
Arm designs central processing unit (CPU) architectures and development tools, and licenses the intellectual property (IP) to customers. Included among its clientele are the five largest companies in the world. Arm IP is the foundation for Apple‘s Private Cloud Compute, Nvidia’s Grace CPUs, Microsoft‘s Cobalt chips, Alphabet‘s Axion CPUs, and Amazon‘s Graviton processors.
That lineup is particularly interesting because those chips are being used in data centers, a market historically dominated by Intel and AMD. To elaborate, Arm chips have traditionally been limited to mobile devices because x86 processors from Intel and AMD have offered superior computational performance. Companies on both sides of the architectural divide have attempted to take market share from the others, but Arm has been more successful.
The company has defended its dominance in smartphones and other mobile devices, while gaining share in data centers by improving its chips’ processing power, especially where AI is concerned. That means Arm is well positioned to monetize AI on two fronts: personal devices like Apple’s iPhones and Microsoft’s Copilot+ PCs, as well as infrastructure and platform services offered by public cloud providers like Amazon and Alphabet.
The only problem with Arm is valuation. Wall Street expects the company to grow adjusted earnings at 25% annually through fiscal 2026 (ends March 2026). That consensus estimate makes the current valuation of 96 times adjusted earnings look outrageously expensive.
3. Broadcom
Broadcom provides IT solutions across two broad categories: infrastructure software and semiconductors. To elaborate, the company sells virtualization, mainframe, and cybersecurity software, which help businesses manage, optimize, and protect IT infrastructure. Of the three software verticals, virtualization is most central to the Broadcom growth narrative. Its subsidiary VMware is the leader in server virtualization, and the market is projected to grow at 18% annually through 2032.
However, Broadcom’s largest opportunities lie in semiconductor solutions because that segment will benefit from demand for artificial intelligence infrastructure. Broadcom is the market leader in data center networking chips, and application-specific integrated circuits (ASICs). Argus analysts Jim Kelleher recently wrote, “The business most being impacted by AI is networking, where Broadcom has long-established market leadership in the enterprise and cloud data center.” But that could change in the years ahead.
Broadcom is also the market leader in high-end ASICs, custom silicon built for specialized use cases like artificial intelligence. The company already designs AI accelerators for Google and Meta Platforms, and it recently won a third major customer. Broadcom announced the deal in March without naming the client, but Reuters identified the company as TikTok parent ByteDance .
Today, custom AI accelerators account for less than 10% of AI processors because the market is dominated by GPUs (Nvidia GPUs to be precise). But Morgan Stanley analysts believe custom AI chips sales will increase more quickly than GPU sales during the next few years, such that ASICs account for up to 30% of AI chips by 2027. In that scenario, Broadcom would likely be the biggest winner because it controls 55% to 60% of the market, according to analysts.
Wall Street expects the company’s earnings to grow at 24% annually through 2025. That makes the current valuation of 38 times earnings look reasonable. Now is a good time for patient investors to buy a small position in this semiconductor stock.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends Broadcom and Intel and recommends the following options: long January 2026 $395 calls on Microsoft, short August 2024 $35 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Nvidia, Arm, or Broadcom: The Best AI Semiconductor Stock to Buy Now, According to Wall Street was originally published by The Motley Fool
