Following Broadcom's Earnings, NVIDIA's Stock is Missing Out on the Big Chip Rally

Broadcom Inc.’s optimistic projections for artificial intelligence (AI) over the next three years sent ripples across the technology sector, sparking a surge in several semiconductor stocks. However, shares of Nvidia Corp. and Advanced Micro Devices Inc. (AMD), key players in the chip industry, failed to join the rally. Instead, both stocks experienced notable declines, becoming the biggest laggards within the PHLX Semiconductor Index.

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While Broadcom’s stock skyrocketed by more than 24% in a record-setting single-day rally, helping the PHLX Semiconductor Index climb 3.4%, Nvidia’s shares dropped 2.3%, and AMD’s fell 2.8%. This divergence highlighted the complex dynamics in the semiconductor space as investors reacted to Broadcom’s projections and the broader implications for AI-related markets.

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On Thursday, Broadcom forecasted a serviceable addressable market valued between $60 billion and $90 billion for fiscal 2027, largely driven by its hyperscale customer base. The announcement fueled investor confidence, not only in Broadcom but also in other companies positioned to benefit from AI advancements. For example, Marvell Technology Inc. saw its stock jump 10.8% as investors speculated on its potential to capitalize on AI-related opportunities through its application-specific integrated circuits (ASICs).

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Broadcom’s projections resonated across the sector, with analysts interpreting the data as a signal that major companies will continue to invest heavily in AI infrastructure. Melius Research analyst Ben Reitzes noted, “We think that all AI semiconductors and networking solutions benefit from these kinds of comments from Broadcom, as they show that large enterprises are committed to AI spending.”

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Despite Broadcom’s positive outlook, Nvidia and AMD stocks faced headwinds, potentially reflecting shifting preferences among major tech players. Mizuho analyst Jordan Klein suggested that companies like Meta Platforms Inc. and Alphabet Inc. might increasingly favor ASICs for generative AI applications over traditional GPUs (graphics processing units), the cornerstone of Nvidia’s and AMD’s product portfolios.

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“Custom silicon is poised to gain market share from GPUs each year, even though GPUs will remain dominant for training AI models,” Klein said. This shift in demand dynamics could explain why Nvidia’s stock failed to benefit from Broadcom’s AI-driven rally. Klein also speculated that some investors might be reallocating funds from Nvidia to Broadcom in the short term, especially given Broadcom’s potential to outperform in the AI space.

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Marvell Technology emerged as one of the biggest winners from Broadcom’s upbeat commentary, with its stock rallying nearly 11%. Klein noted that while Marvell lacks the breadth and diversity of Broadcom, it is well-positioned to capture opportunities in the growing ASIC market, which is gaining prominence as AI applications evolve.

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Another notable beneficiary was Arista Networks Inc., whose stock rose 5.1% on Friday. Broadcom’s commentary highlighted the rapid growth of AI networking, stating that it currently accounts for 5% to 10% of AI-related silicon content but is expected to grow to 15% to 20% in the coming years. Reitzes emphasized that this faster growth trajectory for AI networking could benefit companies like Arista, which provides critical networking solutions for AI infrastructure.

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Arista’s outlook for 15% to 17% growth next year may also underestimate its potential. According to Reitzes, the company is known for issuing conservative guidance, while Broadcom’s projections suggest a much faster growth rate for the AI networking segment.

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Investor Sentiment and Sector Implications

Broadcom’s projections have underscored the continued enthusiasm for AI investments, particularly in semiconductors and networking. Analysts like Reitzes view the commentary as a positive indicator for the broader tech sector, signaling sustained spending by large enterprises on AI-related technologies.

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However, the muted response from Nvidia and AMD stocks reflects a more nuanced market perspective. As the AI landscape evolves, the rise of custom silicon could challenge the dominance of GPUs in certain applications. While GPUs are expected to maintain their leadership in training AI models, the growing demand for ASICs and other specialized chips could create headwinds for Nvidia and AMD.

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In the near term, investors appear to be recalibrating their portfolios to reflect these shifting dynamics. Broadcom’s impressive rally, coupled with gains in Marvell and Arista Networks, suggests that companies perceived as more diversified or better positioned for AI’s future are attracting heightened interest.

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Broadcom’s ambitious AI market projections have reinvigorated investor confidence in the semiconductor and networking sectors, driving significant gains for select stocks. While Nvidia and AMD struggled amidst the rally, the broader tech industry appears poised to benefit from sustained AI investments. As companies like Broadcom and Marvell capitalize on the growing demand for custom silicon and AI networking, the semiconductor landscape is likely to see continued evolution, with opportunities and challenges reshaping the competitive dynamics for years to come.

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