Broadcom vs. Qualcomm: One Owns the Data Center. The Other Is Betting on AI Everywhere Else

AI is getting bigger, but it is also getting smaller. On one hand, AI's growing power demands technology that can support its expanding capabilities. On the other hand, despite its complexity, it is becoming more integrated into everyday life, appearing in smartphones and many devices people already use.

That opportunity leaves room for more than one kind of winner, which is why it's worth talking about Broadcom (AVGO) and Qualcomm (QCOM), particularly how they can maximize the broader AI opportunity.

For dividend investors, that makes today's matchup worth a closer look. Both offer exposure to AI and shareholder income, but they start from very different places.

So, which one offers the better investment setup today?

Broadcom Stock: A Leader in AI Data Center Chips

Broadcom is one of the biggest behind-the-scenes suppliers in modern computing. Its chips are integrated into large-scale data centers, while its accelerators are being designed to cater to AI needs, giving Broadcom a strong position in the technological boom.

It is the giant in this comparison, sitting at a market cap of about $1.7 trillion

Qualcomm Stock: Betting on AI-Powered Smartphones

The challenger is Qualcomm, a chipmaker that powers many of today’s smartphones. If you've used an Android phone, you've likely heard of its Snapdragon processors. That familiar mobile presence is now becoming the foundation for a broader push into AI-powered devices. 

With a market cap of around $187 billion, Qualcomm is barely one-tenth the size of Broadcom, making this a clear heavyweight-versus-challenger matchup. 

AVGO vs. QCOM: Financial Performance, Stock Returns, and Valuation

To compare the two further, I used Barchart’s Stock Comparison Tool.

Let’s start with scale. Remember, Broadcom is roughly nine times Qualcomm's market cap. 

Broadcom generates about $63.9 billion in annual sales, versus about $44.3 billion for Qualcomm. But look at what’s left after costs. Broadcom’s net income is about $23.1 billion, roughly four times Qualcomm’s $5.5 billion. That’s a net margin of about 36%, against about 13%.

And that leads to growth. Over five years, Broadcom’s revenue is up about 167%, versus 88% for Qualcomm. Five-year earnings growth is nearly identical, though, at about 204% and 202%.

But there’s a catch. Over the latest year, Broadcom’s earnings per share grew about 140%, while Qualcomm’s fell about 33%.

Now we have valuation. Broadcom trades at about 34.7 times forward earnings, Qualcomm at about 24.6, while the sector average is 32x. So Broadcom trades at slightly above the sector average, while Qualcomm sits well below it. And remember, Broadcom is roughly nine times the size by market cap, so it isn’t a small premium on a small company.

That’s the trade-off. Broadcom has higher margins, faster revenue growth, and surging earnings, and today’s multiple already reflects that. Qualcomm is cheaper, but its latest-year earnings fell, so the discount comes with a reason. 

Dividend Comparison: Which Stock Pays More?

For income investors, here’s what really matters.

Broadcom pays a forward annual dividend of $2.60, for a yield of about 0.7%. Its dividend payout ratio is 29%, suggesting most of its earnings are still being reinvested in the business. 

Qualcomm’s shareholders are paid $3.68 annually, which translates to a yield of around 2%, and a dividend payout ratio of 40%, which is higher than Broadcom’s but still leaves a healthy portion of earnings available for reinvestment.  

This is where Qualcomm comes back. Its yield justifies its continued appeal, especially with a reasonable payout ratio.

AVGO vs. QCOM Wall Street Analyst Ratings and Price Targets

So, how do the experts view these stocks?

A consensus among 43 analysts rates AVGO stock a “Strong Buy”, with high target prices suggesting a significant upside of around 98% if reached.

Meanwhile, Wall Street is more cautious on QCOM stock, with 33 analysts rating it a “Hold”. However, high target prices suggest as much as 128% upside over the next year.

Which AI Stock Is the Better Buy Now?

Qualcomm offers income investors a compelling reason to look past its weaker momentum, with a cheaper entry point and a more generous dividend.

But still pick Broadcom, as its AI-focused initiatives are more proven today, with figures to back it up. Sure, Qualcomm may have more growth, but its AI case still needs more proof.

On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.