Broadcom vs American Express: Which Is Best?

Chip giant Broadcom Inc. (NASDAQ:AVGO) and card company American Express Company (NYSE:AXP) are not exactly competitors in the same field. Yet, semiconductors and digital payments both offer shareholders compelling value propositions that are hard to ignore with each enjoying a wide moat.

So which is better to own, Broadcom or American Express, an old Buffett favorite?

Chip Giant Broadcom Hot On NVIDIA’s Heels

The newly-minted $1 trillion chip giant is running hot on the heels of NVIDIA Corporation (NASDAQ:NVDA). Over the past month, the stock has appreciated by more than 50%, following a strong quarterly result and anticipation that it can rival NVIDIA, or at the very least provide an attractive alternative to data center players like Alphabet and X.AI.

Broadcom’s chips are the building blocks of creating large language models (LLMs) and AI technology, which largely explains why they have reaped so much of the sector gains over the past few years.

Broadcom has a technology platform called 3.5D XDSiP that enables clients to develop next-generation custom accelerators (called XPUs). The company’s technology is one of the most advanced in providing this service.

The company saw a sliver of it in the last fiscal year (fiscal 2024, which ended in November) when net revenue leaped by 44% year-over-year to $51.57 billion.

For new investors don’t overlook the fact that this growth was a direct consequence of the successful integration of VMware (which the company acquired in 2023), which led to infrastructure software revenue growing to $21.5 billion.

What caught investors’ attention was when semiconductor revenues reached a record $30.1 billion due to a whopping 220% jump in AI revenues to $12.2 billion. Broadcom cited its AI XPUs and Ethernet networking portfolio as a reason for this. The company is also highly profitable and substantially free cash flow positive to the tune of $5.4 billion last quarter alone.

On the other hand, truth be told, this was not what led to Broadcom achieving a $1 trillion valuation. It was heavily a function of CEO Hock Tan’s lofty expectations for the near future. Tan stated that AI could present a revenue opportunity between $60 billion and $90 billion for the company in 2027. This is more than four times what AI is generating for Broadcom now.

There are competitors on the way, but Broadcom has already captured a significant market share and has created a brand image. For example, recently, OpenAI and Apple have chosen to build AI chips with Broadcom so management’s lofty expectations might very well become a reality.

Card Juggernaut American Express 

American Express, or Amex, is one of the largest integrated payment platform providers. The company has a market-leading position in providing charge and credit cards to customers globally. It is surrounded by fierce competitors such as Visa and Mastercard as well as burgeoning start-ups, but as of now, these have not presented a stark problem for the company.

American Express is also a bank-holding company. Recently, it was categorized as a Category III bank holding company when its total consolidated assets went over the $250 billion mark.

Product refreshes have been key to AMEX’s success in hitting this key threshold. From the beginning of the year through to the end of the third quarter, American Express has completed 40 such refreshes globally, including the launch of its U.S. Consumer Gold Card. This product targets the GenZ and Millennial population, which is the company’s fastest-growing customer cohort.

In the third quarter, American Express’ total card member spending increased by 6%, and card fee revenue grew by 18%. The company also reported attracting 3.3 million new card acquisitions, higher retention rates, and better credit spending.

Total revenues (net of interest expense) increased by 8% year-over-year to $16.64 billion. The jump was mainly due to higher net interest incomes due to three growths: loan volume, card member spending, and card fee revenue. American Express also recorded better capital discipline, leading to a small uplift in net income (2% year-over-year) to $2.51 billion.

What’s even more optimistic is that the company raised the full-year earnings per share guidance from a range of $13.30 – $13.80 to $13.75 – $14.05. Revenue guidance has not changed with management still expecting revenue growth of 9%.

Jim Cramer, of the CNBC “Mad Money” fame, expressed glee that American Express managed to win over young customers, the cohort he expects to stick with the company for decades to come. He also praised the company’s credit quality numbers, which he believes will only improve as the Federal Reserve keeps cutting interest rates.

Broadcom vs American Express: Which Is Best?

At this point, both Broadcom and American Express might be well-rounded investments based on their individual merits. For Broadcom, AI is a huge tailwind, and the company itself has lofty expectations. For American Express, its ability to attract younger customers acts as a boost now. 

When you compare the two, though both have strong moats, and Warren Buffett is a long-time admirer of American Express, the reality is at this time Broadcom has the potential to clock better growth than American Express and so has the edge through 2027.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.