A chipmaker at the center of the artificial-intelligence buildout is now valued more modestly than a toothpaste company. That sentence should probably not exist, and yet here we are.

Broadcom Inc. (AVGO) trades at 16.6 times forward earnings. Colgate-Palmolive Co. (CL), the maker of Colgate toothpaste and Palmolive dish soap, trades at 24.5 times.

That puts the ratio between the two forward price-to-earnings multiples at 0.68. In other words, Broadcom stock is 32% cheaper than Colgate on expected earnings.

The gap is not about growth. Analysts expect Broadcom's fiscal fourth-quarter earnings to nearly double to $3.88 per share from $1.95 when it reports on Dec. 9, with revenue climbing to about $35 billion from $18 billion.

So why is Wall Street paying more for each dollar of toothpaste profits than for each dollar of AI chip profits? That is the question two sell-side desks tried to answer on Monday, and neither of them thinks the answer is "because toothpaste is the future."

Broadcom Stock Is Now More Than One Standard Deviation Cheap

Since October 2022, the ratio between Broadcom's and Colgate's forward P/E has averaged 1.02. Today's reading of 0.68 sits 1.16 standard deviations below the four-year average. Last week, after Thursday's selloff, the ratio briefly fell toward 0.62, a level last seen in the spring of 2023.

Broadcom shares have fallen 12.6% over the past month and are down 9.5% this year. Even after Monday's 8.7% rebound to $319.38, the stock sits about 35% below its all-time high of $495. Colgate, for its part, has gained 11.9% over the same month. Toothpaste, it turns out, is having a moment.

The sharpest blow came on Thursday, when Broadcom fell more than 10% on fears that the U.S. midterm results could slow approvals for new data centers. Nothing says "defensive" quite like a company whose product people buy whether or not the electrical grid can keep up with a GPU cluster.

The same split shows up in sector funds. The iShares Semiconductor ETF (SOXX) has lost 23.6% in a month, while the State Street Consumer Staples Select Sector SPDR ETF (XLP) has gained 9.5%. If you had told someone two years ago that the safe trade would be dish soap and the risky trade would be the company supplying custom AI accelerators to hyperscalers, they would have asked what you were smoking. Now it's just Tuesday.

HSBC Says The Staples Premium Looks Unsustainable

"The sell-off in equities since early October has really been more of a violent rotation than anything else," Max Kettner, chief multi-asset strategist at HSBC, said in a note Monday.

According to Kettner, chip stocks and consumer staples have moved as mirror images since July, leaving staples at a valuation premium and tech at a discount. Kettner said that premium in staples and low-volatility stocks "looks unsustainable."

"The likely next direction will be to fade this – and we're starting to position for such an unwind," he said.

Translation: HSBC thinks the market has been hiding in toothpaste and wants to come back out. Whether that works depends on whether the things that scared everyone out of chips in the first place are actually resolved, or just priced in.

Cantor Calls It A Mid-Cycle Correction

"It's officially time to get your shopping lists ready," C.J. Muse, senior analyst at Cantor Fitzgerald, said in a note Monday. That is analyst-speak for "everything is on sale and we are buying."

According to Muse, the PHLX Semiconductor Index is down 38% from its late-June peak, while compute and networking names, including Broadcom, trade at 11 times consensus 2028 earnings.

"Compute remains sold out, lead times across the supply chain are only getting worse, and visibility is extending well into CY28 if not beyond," he said.

Broadcom is one of Cantor's top picks in AI compute, alongside Nvidia Corp. (NVDA) and Advanced Micro Devices Inc. (AMD).

"We understand low multiples on cyclical earnings can be a value trap," Muse said, adding that 2028 estimates are backed by sold-out capacity. That is the crux of the bull case: the earnings are not speculative, they are contracted, and the market is applying a recession multiple to a backlog.

Credit Markets Explain Part Of The Discount

Here is where it gets more interesting than a simple rotation story. Broadcom's credit default swaps have widened by more than 90% since Sept. 17, according to S&P Global Market Intelligence data.

Chipmakers are increasingly helping to finance their customers. As a result, the risk is no longer only whether AI demand holds, but whether buyers can keep raising the money to pay. That is a different kind of risk than "will anyone want this product," and equity investors are not always great at pricing it. Credit markets, on the other hand, are paid to notice.

So part of the discount in Broadcom's multiple may not be about AI skepticism at all. It may be about the plumbing underneath the AI trade, and whether the companies buying all these chips can keep funding the purchases. When your customers need financing to buy your product, your revenue starts to look a little like a loan, and loans trade at different multiples than products.

The Last Time Broadcom Was This Cheap Against Colgate

In the spring of 2023, the forward P/E ratio between Broadcom and Colgate sat near 0.6. That changed on May 24, 2023, when Nvidia guided for about $11 billion in quarterly revenue, against Wall Street expectations near $7.2 billion.

Within weeks, the ratio jumped toward 0.8. By early 2024, Broadcom's multiple had moved above Colgate's. The lesson from that episode is that these valuation gaps can close very fast when the demand picture clarifies, and they can close in the direction of the chipmaker.

In 2023, the doubt was whether AI demand was real. The doubt in 2026 is whether it can be financed. That is a subtler question, and it is the one the market is currently answering with a shrug and a tube of toothpaste.

Analysts Still See Room For Broadcom Stock To Run

Broadcom carries a Buy consensus rating from 31 analysts, 28 of them at Buy, with an average price target of $507.74, according to MarketDash Analyst Ratings. That implies about 59% upside from Monday's close.

Until Broadcom reports on Dec. 9, the market is pricing a toothpaste maker's earnings as safer than those of a company building AI's infrastructure. Whether that reflects a real risk or a temporary rotation is the bet HSBC and Cantor are now making. Both desks are leaning toward "temporary," and both are putting positioning behind it.

The bear case is not crazy: financing risk is real, data center approvals are political, and a 38% drawdown in the semiconductor index is the kind of thing that makes people question their assumptions. But a 32% discount to Colgate on forward earnings is also the kind of thing that makes people question the market's assumptions. One of those two groups is about to be right, and the other is about to explain why they were early.