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Two of the main protagonists in the AI infrastructure space – Nvidia and Broadcom – are set to offer an insight into the competitive dynamics in this surging market with their latest quarterly results.
Both chip makers coexist within the same AI hardware. Nvidia specialising in the ‘off-the-shelf’ high-performance GPUs (like its Blackwell series) which can be used to train AI models, Broadcom focuses in turn on custom-designed kit aimed to support a single customer’s specific workload.
However, increasing evidence that the hyperscalers like Alphabet-owned Google and Meta, who are pouring hundreds of billions of dollars into AI, are looking to build their own chips is a potential threat to Nvidia’s dominance of this market to date. While Broadcom is a beneficiary as the main partner for many of the hyperscalers ‘build your own’ projects.
When Nvidia posts first-quarter earnings on 20 May, data centre related work is likely to remain the primary engine of growth, accounting for roughly $62 billion of the $78.8 billion consensus forecast revenue for the quarter. The spotlight will be on its gross margins and whether it has been able to sustain these above 75%.
Investors will also be hungry for updates on the next generation of Nvidia chips after the successful rollout of the current Blackwell iteration.
Despite continuing to outmatch expectations, Nvidia shares have struggled for momentum. Whereas Broadcom and Alphabet – whose Gemini chatbot seems to be going from strength to strength and is supported by Broadcom’s custom chips – have seen strong gains. This continues a trend of stocks with links to Gemini outperforming those like Nvidia and Microsoft associated with OpenAI's ChatGPT over the last six to nine months.
Forecast quarterly revenue for Broadcom for the month to 3 May of $22 billion implies 47% growth. The focus when it reports on 3 June is likely to be on the company’s ability to convert its backlog of $73 billion of orders into recognised revenue.
Unlike Nvidia, Broadcom derives meaningful recurring revenue from its software business which was augmented by the acquisition of VMware for $69 billion in November 2023.
As hardware takes a bigger share of overall business there is some risk of pressure on margins given it tends to be somewhat less profitable.
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Tom Sieber: Content Editor
Tom Sieber is AJ Bell's Content Editor. He was previously the Editor of Shares Magazine. He has been with the business since 2012.
Tom is a regular contributor to the AJ Bell Money & Markets...
