Analyst Identifies Broadcom, Nvidia, and Nebius as Key AI Infrastructure Plays

Context

Artificial intelligence (AI) is described as a once-in-a-lifetime investment opportunity with effects on the economy that will be felt for some time. While many generative AI companies remain private, investors are turning to public suppliers of computing components who make money regardless of the ultimate winner. A related report identifies one little-known company called an "Indispensable Monopoly" providing critical technology Nvidia and Intel both need.

Market Projections

McKinsey & Company estimates that cumulative data center expenditures will total $7 trillion by 2030. Nvidia estimates that annual global data center capital expenditures will reach $3 trillion to $4 trillion by 2030 as well. Broadcom and Nvidia are slated to capture a large chunk of the computing power portion of this opportunity.

The Three Stocks

Broadcom (NASDAQ: AVGO), Nvidia (NASDAQ: NVDA), and Nebius (NASDAQ: NBIS) are identified as top stock picks in the AI buildout due to massive and growing revenue streams. Broadcom and Nvidia compete for the same market space, though there is a huge opportunity large enough for multiple companies to thrive.

Infrastructure Competition

Nvidia makes graphics processing units (GPUs), which are incredibly powerful units suited for accelerated computing tasks of all varieties. These are the industry standard of AI computing, and it will be nearly impossible to topple Nvidia from this leadership position. However, Broadcom teams up with a client (often an AI hyperscaler) to design a custom AI chip that is specifically formulated for the workloads it will see.

While this makes them inflexible compared to a GPU, it allows them to specialize in the chosen workload, often resulting in better performance at a lower price tag. While Broadcom's custom AI chips aren't applicable for every scenario, they make sense to deploy alongside Nvidia's GPUs.

Nebius Expansion

Nvidia backs Nebius, and it has a deal to provide Nebius with the most cutting-edge products before anyone else. The company is rapidly expanding its data center footprint, increasing from two sites in 2024 to seven in 2025. By the end of 2026, it expects to have 16 data center sites operational worldwide.

In the fourth quarter, Nebius' core AI revenue rose 802% year over year. By the end of 2026, it expects to have an annual run rate of $7 billion to $9 billion, up from $1.25 billion at the end of 2025. Nebius is growing at an unbelievable pace, yet the stock is heavily selling off thanks to concerns surrounding the AI buildout. With Nebius' stock down more than 20% from its all-time high, now is a perfect time to scoop up shares.

Valuation Analysis

Both Broadcom and Nvidia see massive growth for the foreseeable future, but the market isn't pricing them that way. Both stocks are trading at a relatively cheap price tag, using the forward price-to-earnings ratio. However, if you use next fiscal year's projected earnings, they become dirt cheap. The market is really only pricing in a successful 2026. If each company can deliver a strong 2027 as is projected, these stocks are indeed cheap and should be bought with no hesitation.

Takeaway

The article suggests that while Nebius is growing at an unbelievable pace, its stock is heavily selling off thanks to concerns surrounding the AI buildout. Broadcom and Nvidia are trading at a relatively cheap price tag using forward price-to-earnings ratios, as the market is really only pricing in a successful 2026.

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Disclosures

Keithen Drury has positions in Broadcom, Nebius Group, and Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.