Broadcom Inc. (NASDAQ:AVGO) stock plunged roughly 15% after the semiconductor giant reported fiscal second-quarter results that beat Wall Street estimates but failed to deliver the one thing investors were hoping for: a higher AI forecast.
The market’s reaction was swift. But while investors focused on management’s decision to maintain—rather than raise—its long-term AI revenue target, the selloff may have quietly solved a technical problem that had been building in the stock for weeks.
Broadcom: An Overheated AI Trade
Before earnings, Broadcom had become one of the market’s hottest AI names.
Chart created using Benzinga Pro
The stock had surged nearly 38% year-to-date and more than 80% over the past year, riding investor enthusiasm around custom AI chips and the company’s growing role in powering hyperscale data centers. At its recent peak near $480, however, Broadcom was trading more than 20% above its 200-day moving average, which sat near $397.
For momentum traders, that can be a warning sign.
While strong stocks often remain above their long-term trend lines, large-cap technology names that become significantly extended above their 200-day moving averages frequently experience pullbacks, consolidations or periods of cooling before resuming their uptrends.
The earnings-driven selloff may have delivered exactly that reset.
AVGO Stock Gets A Technical Reset
Following the sharp decline, Broadcom shares now trade near $410, dramatically narrowing the gap between the stock and its long-term trend support.
At the same time, the Relative Strength Index, or RSI, dropped to roughly 46 from levels that were approaching overbought territory just days earlier.
In other words, much of the bullish excess that had accumulated during the rally appears to have been flushed out in a single session. Importantly, despite the selloff, Broadcom remains above its 200-day moving average. That’s a level many institutional investors view as a dividing line between long-term uptrends and more significant breakdowns.
As long as that support area near $397 holds, some technicians may view the recent decline as a correction within a broader bull trend rather than the start of a prolonged downtrend.
The Valuation Question
That doesn’t mean Broadcom suddenly looks cheap. Even after the decline, the stock trades at roughly 43 times forward earnings and carries a price-to-sales ratio above 30, per Benzinga Pro data.
Those are premium multiples that reflect investors’ expectations for continued AI-driven growth.
The company’s latest results showed why.
Broadcom reported second-quarter revenue of $22.19 billion, topping expectations, while AI semiconductor revenue surged 143% year-over-year to a record $10.8 billion. Management also projected AI semiconductor revenue of more than $16 billion in the third quarter, representing growth of over 200% from a year ago.
The issue wasn’t slowing AI demand. It was that investors had positioned for an even bigger upside surprise.
Buy-The-Dip Or Breakdown?
That’s what makes the current setup so interesting.
Most post-earnings stories are focused on Broadcom’s unchanged $100 billion long-term AI opportunity and the market’s disappointment with management’s guidance.
The chart tells a different story.
Broadcom’s selloff may have transformed an overheated AI trade into a healthier technical setup, resetting momentum indicators while leaving the long-term uptrend largely intact.
The next battleground is clear: the 200-day moving average near $397.
If that level holds, investors may eventually look back at the 15% plunge not as the beginning of a breakdown—but as the correction that the rally needed.
Photo: Piotr Swat / Shutterstock
Login to comment