Broadcom's Earnings and the Stock Drop
Broadcom (AVGO) reported strong earnings, yet the stock fell. It dropped $30 from the prior day to the reporting day, and fell hard in the morning while the broader market rallied. The market was breaking out two days before a holiday, but AVGO could not follow. By the session, it had come off its lows: down about 6% at the open, then only 3%. Nvidia (NVDA) and other chip names were rallying while AVGO lagged. The stock last made all-time highs several months ago. When you trade earnings, you do not always get the move you expect - good earnings can bring a fall, bad earnings a rally. Expectations for AVGO were not met, or it would have risen with the market.
The report had a lot to like: tripled profits, nearly doubled revenue, good visibility. The problem was guidance. Q4 guidance came in slightly light.
The Fiscal 28 Guidance
The key number was guidance for fiscal 2028. Broadcom raised EPS guidance to $30 from $25. On the prior call, CEO Hock Tan gave no guidance, which was worse. This time there was a $5 guide-up, but it still likely disappointed many hedge funds. These chip names are crowded with hedge funds that are far too long. Broadcom was constrained on revenue by supply, so even the raised guidance fell short of what those funds wanted.
The Hedge Fund Blowup
The main driver of the day's action was a hedge fund blowup. Most chip names are heavily over-owned by hedge funds. The AVGO move was mostly hedge fund unwinds and liquidations, inefficient trading rather than a real change in the company's outlook. There has been a back-and-forth between hardware and software stocks. Software rose on the day. For a couple of weeks it looked like the two sectors might rally together, ending the zero-sum trade, but the market returned to the ping-pong pattern. That fits the technical read.
Marvell and the Google News
Marvell (MRVL) rallied on the day but had also fallen on its own earnings about a week earlier, dropping all the way to $200. It underperformed because it gave no guidance, especially for fiscal 2029, when its big ramp comes. Marvell plans to give that 2029 guidance on October 6th - a clear catalyst. Marvell is one of the biggest holdings in the QVAL ETF.
Outlook and Price Targets
It is too early to call the future for these companies. They can give good or bad outlooks, and they are giving the best numbers they can now. AVGO could run above $500 and blow past its highs, or keep falling and crash. Given the big moves over the last 6 to 12 months, a $500 price target on AVGO is in view. There are AI-related IPOs coming in the next several months, likely not until 2027. If you believed a stock could double over the next 12 months on those IPOs, there would be little reason to sell it now - but someone clearly did sell.
Broadcom is held long in the QVAL ETF. The target was cut last night to $450 from a higher level. The reasoning inverts the hedge fund view: those funds thought chips were great and hyperscalers terrible, but chips are probably near peak earnings, so they deserve a lower multiple, around 15 times. Applying a conservative 15 times fiscal 2028 earnings gives the $450 target. The position stays long. Short-term moves should not worry long-term investors; the plan is to wait for the ramp to kick in, then let the 15 times multiple carry the stock back to $450 over the next year.
