U.S. equities opened mixed on Monday, with semiconductor stocks drawing particular attention following a notable shift in sentiment from Goldman Sachs. While Nvidia (NASDAQ:NVDA) advanced 3.2%, Broadcom (NASDAQ:AVGO) initially tumbled 3.8% before paring losses to sit just 0.2% lower by midday. The moves reflect a recalibration of expectations around AI infrastructure spending and the competitive landscape among chip designers.
Goldman Sachs removed Broadcom from its U.S. Conviction List, replacing it with a focus on what the bank calls “stocks for a broadening market.” The adjustment, which added Microsoft (NASDAQ:MSFT) and five other names, signals a strategic pivot rather than a fundamental bearish call on Broadcom. Analyst Gabriela Borges noted that AI has entered the early phase of “how to make AI work in enterprises,” suggesting that the market is maturing beyond the initial build-out phase.
Nvidia's latest earnings report highlighted its exceptional financial performance. Revenue surged 85% year-over-year to $81.6 billion, with the Data Center segment contributing $75.2 billion, or 92% of total sales. Free cash flow reached $48.6 billion, translating to a remarkable 59.5% margin. CEO Jensen Huang characterized the current AI-factory expansion as “the largest infrastructure expansion in human history,” underscoring the scale of opportunity the company sees.
In contrast, Broadcom's AI semiconductor revenue jumped 143% to $10.8 billion, but its overall revenue growth of 48% to $22.2 billion lags Nvidia. The company's free-cash-flow margin stands at 46.3%, and it forecasts $16 billion in AI chip sales for the current quarter. CEO Hock Tan expressed confidence, noting “the momentum continues.” However, Broadcom's valuation remains elevated at 64.7 times trailing earnings, roughly double Nvidia's 31.6 multiple, though comparisons are complicated by acquisition-related amortization.
AMD (NASDAQ:AMD) presents a more challenging picture. Its Data Center revenue grew 57% to $5.8 billion, but free-cash-flow conversion is only 25%. Trading at over 157 times trailing earnings, the stock is highly sensitive to any slowdown in accelerator demand. CEO Lisa Su called Data Center the company's “primary driver,” but the market is awaiting second-quarter results due Tuesday, with guidance of $11.2 billion in revenue, a 46% increase.
Micron Technology (NASDAQ:MU) stands out for its explosive revenue growth of 346%, driven by memory price increases and robust data-center demand. However, shares dipped 1% on Monday after reports that China's CXMT could boost production capacity, potentially pressuring memory prices. Micron trades at just 18.7 times trailing earnings, offering a lower valuation but with cyclical risks tied to the memory market.
Run-rate sales multiples provide a clearer picture of relative value. Nvidia's multiple of 14.9x is lower than Broadcom's 20.8x and AMD's 18.9x, despite Nvidia's superior growth and cash generation. This suggests the market is not fully pricing in Nvidia's efficiency advantage. Micron's 5.6x multiple is even lower, but its profitability remains tied to memory cycle dynamics.
Goldman's decision to add Microsoft highlights a broader shift in AI investment focus. The bank appears to be positioning for the next phase of AI monetization, where software and enterprise applications take precedence over pure infrastructure plays. This does not imply that hardware demand is waning, but rather that investors are becoming more selective.
Risks remain elevated across the sector. Nvidia's guidance excludes any revenue from China data-center compute, and pricing pressure could emerge if custom processors gain traction. Reduced hyperscaler spending would impact all three chipmakers, while increased memory supply could hurt Micron's margins. AMD's earnings on Tuesday will be a key test, followed by Nvidia's report on August 26.
