AVGO vs NVDA: Tale of 2 Competing AI Stocks?
It was a tumultuous Thu, 06 Mar 2025 for US market as investors parsed the latest moves on tariffs and await Friday's Non-farm payroll (NFP) report and a speech from Federal Reserve Chair Powell.
Tech-heavy Nasdaq Composite closed in correction territory for the first time in 6 months, as the sharp selloff in stocks resumed.
There was no let down in the sell down despite Trump decided to do a U-turn and added more items to a “white-list” of products from Canada & Mexico subject to be excluded (temporary) from the 25% tariffs that went live on Tue, 04 Mar 2025.
Wall Street is genuinely concerned that Trump's tariffs and counter-tariffs could revive inflation and slow economic growth across North America.
By the time market closed on Thursday:
-
DJIA: -0.99% (-427.51 to 42,579.08).
-
S&P 500: -1.78% (-104.11 to 5,738.52).
-
Nasdaq: -2.61% (-483.48 to 18,069.26).
US Weekly Jobless claims report.
Yesterday also saw the weekly jobless claims (economic) report release. (see above)
For week ending 01 Mar 2025, US weekly jobless claims report showed a decline of -21,000 to 221,000, returning to levels seen earlier in the year and coming in below analysts' expectations.
The decline suggests resilience in the labour market despite broader concerns about economic conditions.
US Weekly Continuing Jobless claims report.
However, “Continuing Claims” report, (see above)
-
That reflect the number of people still receiving unemployment benefits, remain near a 3-year high.
-
Clearly indicates jobless individuals are facing greater challenges in finding new employment.
-
For week ending 01 Mar 2025, continuous claims has risen by +42,000 to 1,897,000 claims.
Tale of two Artificial Intelligence stocks.
Thursday also saw $Broadcom(AVGO)$ quarterly earnings release after market closing.
Traders post-hours reaction was a stark contrast to their treatment of $NVIDIA(NVDA)$, for the better part of the week.
The discrepancy between Broadcom's positive earnings report and Nvidia's stock performance this week highlights the complex dynamics in the AI chip market and investor sentiment.
Broadcom's Success
Broadcom's Q1 2025 earnings report showcased strong performance in the AI sector:
-
Revenue surge: Broadcom's AI-related revenue increased by +77% YoY to $4.1 billion, demonstrating significant growth in this segment.
-
Custom AI chips: The company's success can be attributed to its focus on developing custom AI chips designed in collaboration with major tech companies.
-
Diversification: Broadcom's portfolio extends beyond AI, providing a balanced revenue stream that may appeal to investors seeking stability.
Like it or not, its revenue outlook / guidance for current quarter - $14.9 billion, is slightly above the analyst consensus of $14.82 billion.
This is the “sound of music” to Wall Street, paving the way for its stock price ascension.
-
AVGO is poised to open Friday’s trading higher at +8.38%, inching towards the $200 mark, its end February 2025 stock price.
Nvidia's Challenges
Despite Nvidia's dominant position in the AI chip market, its stock has encountered unprecedented downwards pressure.
Top 3 concerns are:
-
Market saturation : Investors are worried about potential market saturation for Nvidia's AI chips, given its explosive growth over the past 2 years.
-
Valuation : Nvidia's stock has been trading at high multiples, leading to (a) profit-taking and (b) increased scrutiny of its valuation.
-
Macroeconomic factors: The broader market sell-off, particularly affecting AI-related stocks, has impacted Nvidia more severely due to its high-profile visibility in the sector.
Discrepancy Reasons.
-
Competition narrative: Broadcom's strong performance may be seen as increased competition for Nvidia, potentially eroding its market dominance.
-
Expectations and surprises: Broadcom's results may have exceeded expectations, while Nvidia's recent performance, although strong, may not have surprised investors given its consistent growth.
-
Diversification advantage: Broadcom's broader product portfolio may be viewed as a hedge against AI-specific market fluctuations.
In summary, while both companies are benefiting from the AI boom, Broadcom's earnings report has been interpreted as a positive surprise, showcasing its growing presence in the AI chip market.
Meanwhile, Nvidia's stock decline reflects a combination of (1) profit-taking, (2) valuation concerns, and (3) increasing competition in the AI chip space.
This situation underscores the volatile, competitive and cyclical nature of the AI technology sector.
DeepSeek, AI-elephant in the room.
Impact of DeepSeek on Nvidia goes beyond what Wall Street has openly discussed.
In fact, it revealed a fundamental shift in the AI landscape that could potentially disrupt Nvidia's dominance:
-
Efficiency revolution: DeepSeek's R1 model demonstrated the ability to achieve high-performance AI with significantly fewer computational resources, challenging the assumption that more powerful chips are always necessary for better AI.
-
Democratization of AI: DeepSeek's approach suggests that smaller companies and startups can now compete in AI development without the massive infrastructure investments - previously thought necessary, potentially reducing demand for Nvidia's high-end chips.
-
Threat to Nvidia's ecosystem: DeepSeek's achievements could accelerate the development of alternative AI frameworks and tools, potentially weakening Nvidia's grip on the AI software ecosystem, including CUDA and its Linux drivers.
-
Margin pressure: As efficiency improvements become more prevalent, Nvidia may face pressure to reduce prices or innovate more rapidly, potentially impacting its historically high profit margins.
-
Geopolitical implications: DeepSeek's Chinese origin highlights the global nature of AI innovation, potentially complicating Nvidia's market position amidst ongoing US-China tech tensions.
Therein lies the real reason for Nvidia’s “inability” to scale back to its $149 / $150 (all time high) achieved on 06 Jan 2025, 3 days before DeepSeek released two DeepSeek-MoE models (Base & Chat) on 09 Jan 2025.
Must Read: Click on below titles to access. Repost to share, Like as encouragement ok. Thanks.
-
Do you think AVGO will outperform NVDA in the immediate to mid term ?
-
Do you think DeepSeek is the “nemesis” that NVDA refused to acknowledge ?
If you find this post interesting, give it wings! ️ Repost and share the insights ?
Do consider “Follow me” and get firsthand read of my daily new post. Thank you.
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
Pls "Re-post" so that more get to know. Tks! Rating is important (to me).
Consider "Follow me" and get first hand read of my Daily new posts? Thanks!). Tks!!
Great article, would you like to share it?