Broadcom stock has crashed this year, and is hovering at its lowest level since April this year, leaving one of the biggest companies in the artificial intelligence industry in a technical bear market. AVGO slipped to $340, down by over 31% from its highest point this year, with its market capitalization falling from $2.29 trillion to the current $1.62 trillion.
Broadcom falls as AI jitters rise
AVGO stock has joined other AI companies in falling sharply as concerns about artificial intelligence (AI) rise. These concerns rose this week after several leaders in the industry called for a slowdown in AI model releases. The leaders are concerned about safety, with some expressing fears of large-scale hacking and use of their models in creating biological weapons.
These fears have pushed most companies in the AI industry in a technical bear market as investors assess how an intentional slowdown means.
However, in reality, analysts believe that many AI companies will continue doing well in the coming months. Broadcom is one such company, having become a major player in the AI sector.
The most recent results showed that its revenue jumped by 48% in the second quarter to $22 billion. This growth was driven by its AI semiconductor sector, whose revenue surged by 104% to $10.8 billion. Its AI accelerators and AI network tools have seen substantial demand from top clients like OpenAI and Apple.
Most importantly, management raised its outlook for the AI semiconductor business. It now expects to make over $16 billion in the third quarter, up by 200% from the same period last year. This makes it one of the fastest-growing companies in the industry.
That guidance pushed more analysts to change their estimates for the quarter and year. As a result, analysts now expect that its total Q3 revenue will be over $34.8 billion, up by 93% from the same quarter last year.
For the fourth quarter, they expect the revenue to jump by 91% to $36.94 billion, bringing the annual figure to $105.9 billion. In other words, based on analysts’ estimates, its annual revenue in the next two years will jump by over 50%. In most cases, Broadcom tends to outperform what analysts expect.
The same is true with its profitability, with analysts expecting its EPS to jump to $11.6 this year from $6.8 last year. It will then hit $19.38 next year.
This growth will partly be driven by its relationship with OpenAI. The two companies recently unveiled Jalapeno, a chip that OpenAI believes is faster than those made by Nvidia.
Fundamentally, Broadcom is also not extremely overvalued. It trades with a forward price-to-earnings ratio of 29, slightly higher than the five-year average of 27. Its forward PEG ratio has moved to 0.53, which is lower than the sector median of 1.16 and the five-year average of 1.38.
Broadcom stock price technical analysis
AVGO stock chart | Source: TradingView
The daily chart shows that the AVGO stock has been in a strong downward trend in the past few months. It has slipped from a record high of $495 to the current $340. It has already dropped below the key support level of $356, its lowest level in July and August this year.
The stock has also slipped below the 61.8% Fibonacci Retracement level and the 50-day moving average. Therefore, the stock will likely remain under pressure in the coming days and then bounce back once these AI jitters ease. In this, it may drop to $300 before starting another bull run.
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