Better Semiconductor Stock: AMD vs. Broadcom

Semiconductor stocks are a great area to invest in. The industry had a strong 2024 with global sales up 19% year over year and more growth expected in 2025. The World Semiconductor Trade Statistics forecasts the industry to reach nearly $700 billion in 2025, up from $627 billion in 2024.

Thanks to factors such as the expanding artificial intelligence market, the industry could enjoy years of additional growth. To capitalize on this, two prominent semiconductor stocks to consider investing in are Advanced Micro Devices (NASDAQ: AMD) and Broadcom (NASDAQ: AVGO).

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Both are seeing strong sales thanks to customer demand for their AI-related products. But if you had to choose only one to invest in, which would it be? Here's a look at AMD and Broadcom to help you arrive at an answer.

AMD's AI approach

AMD specializes in semiconductor products for accelerated computing. Accelerated computing uses dedicated components to speed up the processing of data-intensive tasks, such as those performed by AI.

AMD sees a growing demand for accelerated computing in the years ahead to support not only AI but also an expanding number of data-intensive applications, including 5G wireless networks. Today's computer hardware will require upgrades to support accelerated computing, providing a substantial market for AMD's products.

Artificial intelligence is among the biggest technologies requiring accelerated computing. That's why AI demand supercharged AMD's sales in its fiscal third quarter, which ended Sept. 28, to a record $6.8 billion. This represented an 18% year-over-year increase.

The company's semiconductor products are coveted since they boost the speed and efficiency of AI systems housed in data centers. As a result, AMD's data center sales reached record revenue of $3.5 billion, a 122% year-over-year increase.

AMD is expanding its successful data center business through acquisitions. For example, it expects to close a deal to acquire ZT Systems in the first half of 2025. ZT Systems helps customers implement AI infrastructure.

Thanks to demand for accelerated computing, AMD anticipates its Q4 revenue rising higher than Q3's record $6.8 billion to reach $7.5 billion. That's a double-digit increase over the prior year's $6.2 billion.

Broadcom's drivers of success

CEO Hock Tan called 2024 "a transformative year for Broadcom." This was driven by two key factors: AI and its acquisition of VMware.

The company acquired VMware in November 2023. VMware provides virtualization software, which enables IT organizations to run multiple operating systems on a single server. Broadcom is positioning this ability as a means for businesses to establish their own private cloud computing environment rather than use a public one owned by a conglomerate such as Microsoft.

The approach is attracting customers. Broadcom's infrastructure business segment, of which VMware is a part, increased revenue by 196% year over year to $5.8 billion in the firm's fiscal fourth quarter, which ended Nov. 3.

As for AI, the semiconductor giant's AI-related revenue rose 220% in fiscal 2024 to $12.2 billion compared to 2023's $3.8 billion. This AI demand helped the company's full-year sales reach record revenue of $51.6 billion, a 44% increase over fiscal 2023.

The company's sales success enabled it to generate a strong free cash flow of $5.5 billion in Q4, up from $4.7 billion in the prior year. As a result, Broadcom raised its dividend 11% to $0.59 per share.

Choosing between AMD and Broadcom stocks

Both AMD and Broadcom are excellent semiconductor companies, as evidenced by their strong sales growth. Owning stock in both is ideal, so picking just one is a tough choice. One factor to consider is valuation using the price-to-earnings (P/E) ratio.

Data by YCharts.

The P/E ratio tells you how much investors are willing to pay for a dollar's worth of earnings. Broadcom and AMD's P/E multiples are going in opposite directions as 2024 draws to a close.

After Broadcom announced its impressive fiscal Q4 results, its share price skyrocketed, reaching a 52-week high of $251.88 on Dec. 16. This caused its P/E ratio to surge as well, and as a result, AMD shares look like the better value right now.

On top of that, AMD has another potential advantage over Broadcom. Broadcom is particularly vulnerable to impending U.S. government tariffs and export restrictions on semiconductor products to China. Approximately one-third of its sales are to Chinese customers. In contrast, AMD's exposure to China is about half that of Broadcom at 15% of sales.

While both possess thriving AI businesses, AMD's better valuation and lower exposure to risk in China give it the edge over Broadcom as the superior semiconductor stock to buy right now. That said, Broadcom is worth putting on your watch list to pick up shares when the stock price drops.