Will Broadcom Chips End AMD Stock's AI Dreams?

Core Insights - AMD shares fell over 6% following Broadcom's announcement of a $10 billion order for custom AI chips, believed to be from OpenAI, raising concerns about AMD's competitive position in the AI hardware market [2][7] - Broadcom reported a 63% year-over-year increase in AI revenue, reaching $5.2 billion, while Nvidia's data center sales surged by 56% to $41.1 billion, highlighting AMD's lag in the AI accelerator market [4][3] - The AI hardware market is shifting towards custom silicon for inference workloads, with ASICs emerging as more efficient alternatives to GPUs, indicating a potential change in infrastructure spending [5][6] AMD's Performance - AMD's data center revenue increased by 57% in Q1 to $3.7 billion, driven by strong demand for Instinct GPUs, but fell to $3.2 billion in the subsequent quarter, missing expectations [3] - AMD's MI300 series shows potential but lacks substantial customer validation at scale, posing challenges against Nvidia's established GPU ecosystem and the rise of ASICs [8] Competitive Landscape - Nvidia maintains a dominant share of training workloads, while Broadcom is positioned to gain market share with its custom silicon, potentially threatening AMD's market position [4][8] - The shift from GPUs to ASICs for AI inference workloads mirrors the transition seen in cryptocurrency mining, where efficiency and cost led to a preference for custom chips [6] Valuation and Growth Prospects - AMD stock trades at approximately 40 times estimated 2025 earnings, with expected revenue growth of about 28% this year, aided by a recovery in its CPU business [9] - Broadcom commands a higher valuation at roughly 49 times forward earnings, justified by its accelerating momentum in AI and a significant custom silicon deal [9]