Nvidia (NASDAQ: NVDA) once again defied the laws of gravity this week, delivering a fourth-quarter earnings report that shattered Wall Street’s lofty expectations.
For most sectors, a rising tide lifts all boats, but in the hyper-competitive semiconductor space, Nvidia’s dominance is increasingly acting as an anchor for its rivals.
Despite reporting a massive “beat and raise” fueled by insatiable demand for its Blackwell and Rubin GPU architectures, the market’s reaction was a paradoxical sell-off for rivals like AMD and Broadcom stock.
Why Nvidia’s strength is hurting AMD and Broadcom stock
The primary catalyst behind the slump in AMD and Broadcom stock lies in the shifting dynamics of the AI market – specifically, the pivot from “training” models to “inference.”
During the earnings call, Nvidia CEO Jensen Huang emphasised the explosive growth of AI inference, the stage where trained models are used to solve real-world problems.
This is the exact territory where AMD’s Instinct GPUs and Broadcom’s custom ASICs were expected to gain the most ground.
However, Nvidia’s results proved that the incumbent leader isn’t just defending its turf; it is aggressively expanding into the inference space with software-integrated solutions that make switching difficult.
Hardika Singh of Fundstrat Research noted that because AMD and Broadcom compete most directly with Nvidia in inference rather than the foundational training of LLMs, Nvidia’s strengthening grip on this segment signals a tighter window of opportunity for the challengers.
Is AMD stock worth buying on the dip?
The valuation gap between the industry leader and the underdog has reached a point that is raising eyebrows across trading floors.
Paul Meeks of Freed Capital expressed disbelief at the current market pricing.
“What blows me away is that AMD, with a data centre business that’s 11X smaller than NVDA’s, with an inferior profit margin, & with slower prospective revenue growth, trades at a higher multiple.”
At the time of writing, Nvidia trades at about 23.7 times projected earnings, while AMD commands a richer 28.4-times multiple.
Moreover, while AMD’s recent deals with OpenAI and Meta Platforms offer it a “foot in the door” with hyperscalers looking to diversify away from NVDA, they are fraught with risk as well.
These agreements involve performance-based warrants – essentially giving away equity to secure customers – suggesting AMD may be struggling to generate organic demand without offering huge incentives, making its stock a bit risky to own at the current price.
Is Broadcom stock worth buying on the dip?
While AMD faces an uphill battle in valuation, Broadcom Inc presents a more nuanced case for investors looking to buy the dip.
AVGO shares fell over 6% in the wake of Nvidia’s report, but many analysts believe it’s a temporary disconnect.
The company is set to report its own fiscal first-quarter earnings next Wednesday, and the outlook remains robust.
Oppenheimer recently reiterated an “Outperform” rating, citing Broadcom’s unique position in custom AI accelerators (XPUs) and high-end networking.
“The combination of AI compute/networking exposure, expanding earnings power over time, and defensible technology gives us confidence in AVGO’s business and financial model.”
Unlike AMD, which competes head-to-head in the GPU market, Broadcom stock thrives on the “plumbing” of AI – the networking switches and custom chips that allow massive GPU clusters to communicate.
With a reported AI backlog of $162 billion and a dominant role in the networking layer (Tomahawk 6 switches), AVGO’s current dip may offer a strategic entry point for those who believe the AI infrastructure build-out is still in its early innings.
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