Weekly AI Bubble Watch: Broadcom, Nvidia, and Microsoft




Last week, stocks that led the yearlong artificial intelligence sector rally pulled back unexpectedly. The reversal is often one of the signals indicating a bubble popping. Still, the stock decline in Broadcom (AVGO) and Nvidia (NVDA) may not mean much. Microsoft (MSFT) closed higher last week, up by 1.86%.

Microsoft has a market cap of $3.342 trillion, compared to Nvidia’s at $3.113 trillion. The latter overtook Microsoft in size, albeit briefly.

Broadcom is not a pure-play supplier to the AI market. It did, however, mention AI 51 times in its second-quarter earnings call. CEO Hock Tan said that revenue rose by 12% Y/Y, driven largely by AI revenue which rose by 280% Y/Y to $3.1 billion. This offset a cyclical decline in chip revenue from the enterprise and telco sectors.

Broadcom expects AI to drive demand for hyperscalers, AI data center clusters, NIC, and PCI Express switches in the AI backend fabric. The halo effect of AI investments is lifting many networking stocks. Look at Cisco (CSCO),
Coherent (COHR), and Arista Networks (ANET). They all trade at higher price-to-earnings multiples. CSCO stock may look cheap at a 15.9 times P/E but this is historically high.

Time will tell if the AI market is in a bubble. Corporations are rushing to buy AI hardware without understanding its contribution to business growth.



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