Key Points
Broadcom (NASDAQ: AVGO) and Marvell (NASDAQ: MRVL) are leaders in the custom chip and data center networking markets. Both companies are riding the AI infrastructure build-out wave, but of the two stocks, Broadcom clearly stands out as the better AI stock to buy today, in my view.
Custom chips and networking
The tech sector’s spending on AI infrastructure is enormous, and it just continues to grow. While cloud computing providers have laid out the strong returns they are getting on their investments, these companies and other hyperscalers (owners of large data centers) are still looking to reduce costs further to get even better returns. In fact, Alphabet has said that for servers built around its own custom AI chips, the period or time it takes for those AI investments to pay back their upfront costs gets cut in half from two years to one. As such, it is not surprising that many hyperscalers are looking to develop their own custom AI chips to help reduce costs.
According to semiconductor industry website Tom’s Hardware, custom AI chip shipments are projected to grow nearly 45% this year. While Nvidia‘s graphics processing units (GPUs) continue to dominate the data center market, custom chips are projected to hit a nearly 28% share in 2026.
Two of the companies hyperscalers commonly turn to for help in developing custom AI chips are Broadcom and Marvell. Both companies are leaders in application-specific integrated circuit (ASIC) technology. ASICs are hardwired chips designed to handle specific types of workloads. While they are less flexible than programmable GPUs, they perform their narrow functions well, and tend to be cheaper and more energy-efficient over the long run.
Where Broadcom and Marvell come in is that they provide some of the intellectual property and services that take customers’ designs and ideas, and turn them into physical chips that can be manufactured at scale. Broadcom is the leader in the AI ASIC design space, with Counterpoint Research projecting that it will maintain a 60% market share in 2026. The company provides a premium service at a premium price, but its results speak for themselves.
Broadcom helped Alphabet develop its highly regarded Tensor Processing Units (TPUs), and those chips will be its biggest growth driver in the near future. While Alphabet will remain a major customer, Anthropic will become Broadcom’s largest customer, as the three companies have agreed for Anthropic to buy Alphabet TPUs directly from Broadcom.
Meanwhile, Alphabet is developing new TPUs with specific versions for training and inference, and MediaTek is getting some of the design work. Broadcom has also helped OpenAI, Meta Platforms, and others develop custom chips. It is guiding for its ASIC revenue to double over each of the next two fiscal years, and to reach $230 billion in fiscal 2028.
Marvell offers a more à la carte ASIC service. Its largest customer is Amazon, and it also helped Microsoft develop its new Maia chip. However, it is believed that it has lost the lead position on future iterations of Amazon’s Trainium chips to Taiwanese semiconductor company AIchip.
Marvell did score a big win, however, when it agreed to a deal with Alphabet to provide an assortment of components within its TPU architecture, including AI inference accelerators, storage controllers, and network interface controllers. It expects a substantial acceleration in its custom chip business in the second half of its fiscal 2027 and into fiscal 2028. As such, Marvell projects that its data center business will soar by 60% in fiscal 2028, with its custom chip business more than doubling.
In addition to their custom chip opportunities, both Broadcom and Marvell are strong networking players. Broadcom is the leader in AI data center Ethernet solutions with its Tomahawk and Jericho chipsets. Marvell, meanwhile, shines in its connectivity business. The company is a leader in optical interconnects, which is a market that is starting to boom as data center developers shift from copper wires to fiber optics, which offer superior bandwidth and lower energy costs, among other advantages.
The verdict
Marvell stock has greatly outperformed Broadcom this year. It’s up by over 200%, while Broadcom is a mere 3% higher after an up-and-down performance. The disparity has left the stocks with greatly different valuations. Broadcom trades at a forward price-to-earnings (P/E)ratio of 18 times estimates for its fiscal 2027 (which ends in October 2027) and 11.5 times fiscal 2028 estimates. Marvell trades at a forward P/E of 37.5 times estimates for its fiscal 2028 (which ends in January 2028) and 25 times fiscal 2029 estimates.
Both of these semiconductor stocks have promise as investments, but Broadcom has more upside given its growth, segment leadership, and dirt-cheap stock price.
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Geoffrey Seiler has positions in Alphabet, Amazon, Broadcom, and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Amazon, Broadcom, Marvell Technology, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
