With traders and investors continuing to bet on the world-altering potential of artificial intelligence (AI), shares of chipmaker Broadcom [AVGO] have risen 28.2% this year, closing at $297.39 on Friday 29 August. However, the stock comes into this week roughly 6% down on the record intraday high of $317.35 that it hit on Wednesday 13 August. Can the shares revisit – and perhaps surpass – that peak after the Nasdaq-listed company reports its third-quarter results on Thursday 4 September? Our trading expert Michael Kramer has his doubts…
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Broadcom shares could fall, despite expectations of solid Q3 results
Although Broadcom is expected to report strong Q3 results, the share price has lost a bit of momentum recently, according to Kramer, the founder of investment firm Mott Capital Management. Writing in our weekly market preview column The Week Ahead, Kramer outlined how Broadcom is expected to report that Q3 earnings grew 32.9% to $1.65 per share as revenue rose 21% to $15.8bn, based on analysts’ estimates, though gross margins may dip to 77.0% from 79.4%. That robust performance seems set to continue in Q4, with analysts anticipating revenue of $17.0bn, margins at 76.4%, and earnings of $1.79 per share.
Yet despite bullish sentiment among options traders pointing to an up to 7% post-earnings move for the stock technical indicators are weakening. The stock has broken below a key uptrend, faces resistance from $316 to $320, and the falling relative strength index indicates weakening momentum. If Q3 results disappoint, “the stock could fall towards strong technical and options support around $270,” wrote Kramer.
Broadcom share price, February 2025 - present
Consensus price target remains positive
Overall, shares of Broadcom – which has overtaken Tesla to become the seventh most valuable listed US company – are expected to tick higher over the medium to long term. Consensus estimates compiled by the Financial Times on Thursday 28 August show that, among a group of 43 analysts, 12 rated Broadcom shares a ‘buy’, 29 ranked them ‘outperform’, and two labelled them a ‘hold’. There were no ‘sell’ or ‘strong sell’ ratings in the sample. Furthermore, of the 35 analysts who offered a 12-month price target for the stock, the median estimate of $310 represents a 4.2% increase from Friday’s closing price of $297.39. That said, the high estimate was $400 (+34.5%), while the low estimate was $202 (-32.1%), indicating widely divergent views on where the shares may be heading.
The future of the stock is likely to continue to be shaped by demand for the chips that power AI. Whatever the long term potential of AI, the near-term outlook for chipmakers’ shares appears uncertain. The experience of rival Nvidia, whose shares fell 3% in after-hours trading after it reported quarterly results last week, suggests that the market has a few concerns about chip sales moving forward.
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