2 Artificial Intelligence (AI) Stocks to Buy as Demand for Custom Chips Soars

Written by Prosper Junior Bakiny for The Motley Fool->

Both companies have developed custom AI chips for major hyperscalers.

They are rapidly growing their revenue and earnings.

Demand for their services should increase substantially over the next few years.

According to some reports, Amazon (NASDAQ: AMZN) is in early talks to sell Trainium, a line of ASICs (Application-Specific Integrated Circuits) -- or custom chips designed to handle specific tasks. The fact that Amazon is exploring selling Trainium to other data centers, even though it has only used it in-house so far, suggests that demand for custom AI chips is rising. And if that's the case, it might not be such a bad idea to invest in stocks that could capitalize on this trend. Let's consider two leaders in this niche that may be worth investing in right now: Broadcom (NASDAQ: AVGO) and Marvell Technology (NASDAQ: MRVL).

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Broadcom is one of the companies that could be a big winner from the rising demand for custom AI chips. The company already has several notable partners for whom it develops products. The list includes Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) -- with whom it has a contract extending through the next five years -- Meta Platforms (NASDAQ: META), and OpenAI. Broadcom is already cashing in on its work in this area: The company's revenue, earnings, and cash flow have been growing at a good clip.

In the second quarter of its fiscal year 2026, which ended on May 3, Broadcom's revenue increased 48% year over year to $22.2 billion. The company's AI chip business grew much faster, posting sales of $10.8 billion, up 143% year over year. Broadcom's adjusted earnings per share increased 54% year over year to $2.44. The company's guidance also seemed strong: Broadcom predicted an over 200% year-over-year increase in its AI chip business for Q3.

However, the company's stock dropped after earnings, as even the significantly accelerating sales growth of its most important business unit right now wasn't enough to please Wall Street. Even so, one thing that seems clear is that Broadcom is looking at a large, growing opportunity, as companies increasingly seek to diversify away from the leader in the AI chip market, Nvidia (NASDAQ: NVDA). The hyperscalers with whom Broadcom works benefit from greater cost-effectiveness when opting for custom AI chips rather than comparable GPUs (Graphics Processing Units).

That means higher profits and margins for them and, potentially, even more spending as they continue to battle it out. Alphabet, for instance, has already projected that its capex spending will increase significantly in 2027 compared to this year's already massive $180 billion to $190 billion. AI-related spending will likely be a large part of that, and that's great news for Broadcom. The company could ride this wave over the medium term while delivering strong returns. Even after crushing the market over the past five years, it's not too late to invest in the stock.

Marvell also develops custom AI chips for hyperscalers. It has worked with both Amazon and Microsoft (NASDAQ: MSFT). Increased capex spending by these tech giants will be good news for the company. And for what it's worth, Marvell's financial results and outlook show strong signs of exactly the direction many investors and analysts believe the market is taking. In the first quarter of its fiscal year 2027, ending May 2, Marvell's revenue reached an all-time high of $2.4 billion, up 28% from the year-ago period. The company's adjusted earnings per share increased 29% year over year to $0.80. Marvell's data center revenue accounted for 76% of its total top line.

What's more, Marvell expects year-over-year revenue to accelerate in each quarter of fiscal year 2027, an excellent sign of rising demand for its services. True, Marvell Technology plays second fiddle to Broadcom in the custom AI ASIC market. While they combine for 95% of it -- according to some estimates -- Broadcom's nearly $11 billion revenue from this business in its latest quarter was much higher than Marvell's $1.8 billion.

However, Marvell is also well-positioned to ride the soaring demand for AI chips, thanks to its partnerships with major corporations and improving financial results. The stock has skyrocketed this year for a good reason, and it might not be too late to get in on the action.

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Prosper Junior Bakiny has positions in Alphabet, Amazon, Meta Platforms, and Nvidia. 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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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