The rising use of Artificial Intelligence (AI) models and products across multiple industry verticals and advancements in semiconductor technologies is expected to create new opportunities for AI hardware providers going forward. 

Thus, investors could consider watching fundamentally sound AI hardware stocks, Broadcom Inc. (AVGO), QUALCOMM Incorporated (QCOM), and International Business Machines Corporation (IBM).

The increasing global adoption of AI and significant investments in developing specialized AI hardware are expected to drive growth in the AI hardware market. Additionally, the rising demand for improved processing and computational capabilities to support advanced AI algorithms is expected to motivate AI hardware manufacturers to innovate.

According to IDC’s latest Worldwide Semiconductor Technology Supply Chain Intelligence report, the global demand for AI and high-performance computing (HPC) will continue to rise, growing by over 15% in 2025. Also, as per reports by McKinsey, AI-related semiconductors could account for almost 20% of all demand by 2025, which would translate into about $67 billion in revenue.

Considering these factors, let’s take a look at the fundamentals of the three AI hardware stock picks.

Broadcom Inc. (AVGO)

AVGO designs, develops, and supplies various semiconductor devices with a focus on complex digital and mixed signal complementary metal oxide semiconductor-based devices and analog III-V based products worldwide. The company operates in two segments: Semiconductor Solutions and Infrastructure Software. 

On January 5, 2025, AVGO announced the availability of the Brocade G710 24-port 64G switch, the industry’s most responsive and efficient top-of-rack SAN switch. Brocade Gen 7 Fibre Channel combines cyber-resilient and autonomous SAN technology into this cost-effective platform that seamlessly integrates into rack-based storage solutions.

On November 5, AVGO launched a private cloud platform, VMware Cloud Foundation, which is simple to deploy, easy to consume, and lowers cost and risk. It also unveiled ecosystem partnerships and a private cloud modernization program.

The expanded set of VMware Cloud Foundation (VCF) Advanced Services innovations, ecosystem partnerships, and modernization programs accelerate generative AI application development, cybersecurity initiatives, and sovereign cloud adoption.

AVGO’s 75.20% trailing-12-month gross profit margin is 48.7% higher than the 50.56% industry average. Furthermore, the stock’s 11.43% trailing-12-month net income margin is 197.6% higher than the 3.84% industry average.

AVGO’s net revenue rose 51% year-over-year to $14.05 billion for the fourth quarter that ended November 3, 2024. The company’s non-GAAP net income and EPS totaled $6.97 billion and $1.42, reflecting increases of 44.8% and 27.9% from the prior year’s quarter, respectively.

In addition, the company’s adjusted EBITDA increased 50.3% from the year-ago value to $9.09 billion.

Street expects AVGO’s revenue to increase 22.2% year-over-year to $14.26 billion for the first quarter ending January 2025. The company’s EPS for the same quarter is expected to increase 37.2% year-over-year to $1.51. Also, AVGO surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.

The stock has gained 34.3% over the past three months to close the last trading session at $240.91.

AVGO’s POWR Ratings reflect its outlook. The stock has a B grade for Sentiment, Growth, and Quality. AVGO is ranked #23 out of 90 stocks in the Semiconductor & Wireless Chip industry. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Click here to access the additional AVGO ratings (Value, Momentum, and Stability).

QUALCOMM Incorporated (QCOM)

QCOM engages in the development and commercialization of foundational technologies for the wireless industry worldwide. It operates through three segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI). 

On January 17, 2025, QCOM announced a quarterly cash dividend of $0.85 per common share. The dividend will be paid on March 27, 2025, to stockholders of record at the close of business on March 6, 2025.

QCOM’s 26.03% trailing-12-month net income margin is 577.6% higher than the 3.84% industry average. Furthermore, the stock’s 56.21% trailing-12-month gross profit margin is 11.2% higher than the 50.57% industry average.

For the fiscal 2024 fourth quarter that ended September 29, 2024, QCOM reported total revenues of $10.24 billion, up 18.7% year-over-year. The company’s non-GAAP operating income rose 31.4% from the previous year’s quarter to $3.51 billion. Also, QCOM’s non-GAAP net income and non-GAAP EPS were $3.04 billion and $2.69, up 33.3% and 33.2% from the prior-year quarter, respectively.

According to the company’s guidance for the fiscal year 2025 first quarter, QCOM projects revenues between $10.50 billion and $11.30 billion. Its non-GAAP EPS is expected to be between $2.85 and $3.05.

Analysts expect QCOM’s revenue and EPS for the first quarter (ended December 2024) to increase 9.7% and 7.6% year-over-year to $10.89 billion and $2.96, respectively. Further, the company has surpassed the consensus revenue and EPS estimates in all four trailing quarters, which is remarkable.

QCOM’s stock has gained 11.4% over the past month and 11.4% over the past year to close the last trading session at $170.24.

QCOM’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. 

QCOM has an A grade for Quality and a B for Value. It is ranked first out of 90 stocks in the Semiconductor & Wireless Chip industry.

Beyond what is stated above, we’ve also rated QCOM for Quality and a B for Value. Get all QCOM ratings here.

International Business Machines Corporation (IBM)

IBM addresses the hybrid cloud and AI opportunities with a platform-centric approach. It combines technology and business expertise to deliver client value. Its segments include Software; Consulting; Infrastructure; and Financing, focusing on providing comprehensive solutions for businesses across various industries.

On November 6, IBM and Cognizant Technology Solutions Corporation (CTSH) launched a new FinOps Center of Excellence (CoE) built on IBM’s FinOps software and CTSH’s cloud and developer platforms. The partnership is expected to expand IBM’s reach in the rapidly evolving financial and cloud sectors, enhancing its reputation as a leader in addressing critical business challenges.

IBM’s 11.58% trailing-12-month EBIT margin is 113.8% higher than the 5.41% industry average. Furthermore, the stock’s 56.53% trailing-12-month gross profit margin is 12% higher than the 50.47% industry average.

For the fiscal 2024 third quarter that ended on September 30, IBM’s total revenue increased 1.5% year-over-year to $14.97 billion. Its gross profit rose 4.9% from the year-ago value to $8.42 billion.

Additionally, the company’s non-GAAP income from continuing operations increased 6.1% year-over-year to $2.16 billion, whereas its non-GAAP EPS from continuing operations grew 4.5% from the prior year’s quarter to $2.30.

Analysts expect IBM’s revenue and EPS for the fiscal year ended December 2024 to increase 1.5% and 6.1% year-over-year to $62.81 billion and $10.20, respectively. Moreover, the company topped the consensus EPS estimates in all four trailing quarters.

Shares of IBM have surged 21.2% over the past six months and 29.2% over the past year to close the last trading session at $223.26.

IBM’s POWR Ratings reflect bright prospects. The stock has a B grade for Momentum and Quality. IBM is ranked #39 out of 78 stocks in the Technology – Services industry.

In addition to the POWR Ratings highlighted above, one can access IBM’s ratings (Value, Stability, Momentum, and Sentiment) here.

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AVGO shares were trading at $237.44 per share on Thursday afternoon, down $3.47 (-1.44%). Year-to-date, AVGO has gained 2.42%, versus a 3.69% rise in the benchmark S&P 500 index during the same period.

About the Author: Nidhi Agarwal

Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities. More...

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