AMD vs. Broadcom: The better AI-chip stock to buy after the sell-off

A brutal week for chip stocks ended with the PHLX Semiconductor Index in a bear market, down more than 20% from its June peak. Two of the AI (artificial intelligence) trade's flagship names went down with it. Advanced Micro Devices (NASDAQ: AMD) now trades about 15% below its high, while Broadcom (NASDAQ: AVGO) has fallen about 25% from its own.

Both companies, meanwhile, are executing about as well as they ever have. Falling stock prices and accelerating businesses make for a good time to compare the two.

So, which chipmaker deserves new money after the sell-off?

AMD: accelerating, and priced like it

AMD's first-quarter results showed a company hitting its stride. Revenue rose 38% year over year to $10.3 billion, led by the data center segment, where revenue climbed 57% to $5.8 billion on strong demand for its EPYC server processors and the continuing ramp of its Instinct AI accelerators. Non-GAAP (adjusted) earnings per share rose 43% to $1.37, and free cash flow hit a quarterly record of $2.6 billion. Even the client business, which sells chips for personal computers, grew 26%. Profitability is moving the right way, too, with the company's adjusted gross margin expanding to 55% from 54% a year earlier.

And the growth is speeding up. Management guided for second-quarter revenue of about $11.2 billion, implying roughly 46% year-over-year growth -- up from 38% in Q1. CEO Lisa Su said customer engagement around the company's upcoming MI450 series accelerators and Helios rack systems is strengthening, with forecasts from leading customers exceeding AMD's initial expectations.

The problem is the price. At about $500 per share as of this writing, AMD trades at roughly 67 times this year's expected earnings and about 37 times next year's. The stock also pays no dividend.

That's a price that assumes AMD will continue to gain share in AI chips for years to come. It might. But that outcome is largely priced in already.

Broadcom: faster growth, cheaper stock

Broadcom's fiscal second quarter (the period ended May 3, 2026) was arguably even stronger. Revenue climbed 48% year over year to $22.2 billion. The star was AI semiconductor revenue (the custom AI accelerators and networking chips it builds for cloud giants), which soared 143% to $10.8 billion. Adjusted net income came in at $12.1 billion, and free cash flow was $10.3 billion, a staggering 46% of revenue.

Additionally, Broadcom pays a quarterly dividend of $0.65 per share, yielding about 0.7% at the stock's current price. AMD offers no comparable income stream.

The outlook is even better.

"The momentum continues and in Q3 we expect semiconductor revenue from AI to grow over 200 percent year-over-year to $16.0 billion," said CEO Hock Tan in the company's fiscal second-quarter earnings release. Total revenue guidance calls for about $29.4 billion, up 84% year over year.

Broadcom isn't all hypergrowth, though. Its infrastructure software segment, about a third of revenue, grew just 9% year over year. It's a profitable, steady business, but it dilutes the growth rate the chip side is producing. And the custom AI chip business leans on a handful of hyperscale customers, so orders can be lumpy, and a few buyers' decisions carry a lot of weight.

Still, the valuation math is hard to argue with. At about $370 per share, Broadcom trades at roughly 32 times this year's expected earnings and about 19 times next year's, roughly half of AMD's multiple on both counts.

The better buy right now

On growth, Broadcom currently has the edge, with guidance calling for 84% revenue growth this quarter against the roughly 46% AMD's outlook implies. On cash, it isn't close. Broadcom generated about four times AMD's quarterly free cash flow, and it pays a dividend while AMD does not. And on price, Broadcom trades at about half AMD's multiple of expected earnings.

Of course, AMD is the purer bet on gaining share in AI accelerators. If the MI450 ramp exceeds forecasts next year, earnings estimates could race higher and make today's multiple look conservative. For investors who want maximum upside to that scenario, AMD is the more explosive stock -- in both directions.

But when the faster-growing business is also the cheaper stock and the stronger cash generator, the decision isn't difficult. I'd buy Broadcom over AMD after this sell-off.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Broadcom. The Motley Fool has a disclosure policy.