Broadcom (AVGO) in Focus
Broadcom (AVGO) CEO Hock Tan pushed back on worries that calls to slow frontier AI growth could hurt chip demand. In a CNBC interview, Tan stood by the company's fiscal 2027 and 2028 AI revenue targets, saying demand for computing infrastructure stays strong. He is most optimistic about inference. He agreed AI needs safeguards and called it a tool that can create big value and lift productivity. The open question for investors is who wins and loses if AI development slows.
Why the Stock Sold Off
Broadcom (AVGO) reported earnings on September 2nd. Numbers were strong, but guidance for fiscal Q4 came in light and disappointed the market, which is what pushed the stock down. The company is still talking about big deployments for Anthropic and OpenAI, and is locking in supply chains to double semiconductor revenue in each of the next two years. Long-term guidance calls for a doubling of the growth rate in 2027, another double in 2028, and a further double after that. In this market you cannot set a disappointing guidance level without getting punished.
The stock has stayed under pressure and did not bounce back with other tech names. On the day discussed, Nvidia (NVDA) and AMD (AMD) traded higher while Broadcom (AVGO) did not. A key reason is Broadcom's heavy reliance on Anthropic, set to be its biggest customer in 2027 and 2028. Anthropic CEO Dario laid out a plan asking for more regulation, and tighter rules could hurt suppliers to that company. There is also risk that Broadcom loses some custom chip work, for example if Meta (META) shifts to Google/Alphabet (GOOGL) instead of Broadcom.
AI Chip Growth and Price Action
AI chip revenue grew 221% year over year last quarter, and next quarter is expected to grow over 230% year over year. Even so, the stock is down on the year and year over year, and off about 31% from all-time highs. It traded near $495 right before the earnings two quarters ago. It has now fallen below the 50-day and 200-day simple moving averages, sitting at five to six month lows in what looks like no man's land. The relative strength indicator is in the low 20s, close to oversold.
Bullish Trade: Unbalanced Call Butterfly
For a bullish view betting on a bounce with some time cushion, one setup uses the October 2nd weekly options, which expire in 17 days. The option market prices in a move of about plus or minus $20 to $22 in the stock.
The trade:
- Buy one 340 call (currently at the money)
- Sell two 360 calls (near the one standard deviation move higher)
- Buy one 365 call
Cost was around a $6.00 to $6.50 debit, which is the total risk (about $650 per spread). Peak profit sits near 360, where the two calls are sold. If the stock rallies above 365 within the 17 days, the trade still returns more than double the risk. The break-even is about $346.50, so the stock needs to move about $6.50 up from current levels to reach profit. Using the unbalanced butterfly instead of a plain 340/360 call vertical lowers the upfront cost and risk. Value expands most as expiration nears.
Bearish Trade: Short Call Vertical
A more passive, neutral-to-bearish setup uses the same October 2nd weekly options, 17 days out, betting the stock stalls below the 50-day moving average, near the 365 to 370 area.
The trade:
- Sell the 355 call (about $15 out of the money)
- Buy the 365 call
This is a $10-wide short call vertical collecting about a $2.30 credit, likely closer to $2.10 after the stock's pullback. Max profit is the credit of $230 per spread, with $770 in risk. Risk equals the $10 strike width minus the credit collected. The break-even is $357.30. There is far more risk than reward, but the payoff has a higher chance of hitting: the 355 call has about a 72% chance of finishing out of the money. The plan is for the stock to stay below 355 so the spread expires worthless and the credit is kept. Value contracts as expiration nears.
The bullish butterfly takes the more aggressive stance; the short call vertical is the passive, higher-probability bearish play.
