Nvidia Isn’t This Analyst’s Top Chip Stock Any More. This Is the New Favorite.

Broadcom helps companies design custom artificial-intelligence chips. (Dreamstime)

Key Points

• Jefferies analysts favor Broadcom over Nvidia as an investment in the AI sector, citing greater upside potential for Broadcom.
• Jefferies raised its Broadcom price target to $480 from $415, suggesting a potential gain of approximately 35% from its premarket price.
• Broadcom is expected to benefit from custom chip projects for Google, Meta Platforms, and OpenAI, in addition to general AI spending.

Nvidia is the leader when it comes to artificial-intelligence chips but rival Broadcom could be a better bet as an investment, according to analysts at Jefferies.

While both Nvidia and Broadcom are set to benefit from the continued wave of AI spending, it is the latter whose stock has more room to rise right now, according to analyst Blayne Curtis and his colleagues. Broadcom is their top pick in the semiconductor sector.

“For now, this is not a zero-sum game, rather a scramble for compute with upside across the entire AI universe. While Nvidia remains the leader and we still see upside there, Broadcom has a greater magnitude of estimate upside,” wrote the analysts in a research note.

Analysts at Jefferies raised their price target on Broadcom to $480 from $415, based on a price-to-earnings multiple of 35 times their forecast for its 2027 earnings. Broadcom shares were down 0.1% at $362.34 in early trading, indicating a potential gain of around 35%.

By comparison, they have a price target of $240 on Nvidia stock, suggesting a roughly 19% upside to the company’s share price of around $203 on Tuesday. That’s based on a price-to-earnings multiple of 27 times their forecast for Nvidia’s 2027 earnings.

While Nvidia chips will continue to be in demand, the Jefferies analysts expect Broadcom to benefit from custom chip projects at Google, Meta Platforms , and OpenAI.

“We expect numbers will have to continue marching higher and see step function estimate revisions upward over the next year. Given the significant upside to numbers, we are making Broadcom our top pick,” the analysts wrote.

Write to Adam Clark at adam.clark@barrons.com