Broadcom (AVGO) has entered a technical bear market, with shares sliding more than 31% from their 52-week high as investor anxiety over artificial intelligence safety intensifies. The stock recently traded near $340, down from a peak of $495, and its market capitalization has contracted from $2.29 trillion to roughly $1.62 trillion. The decline accelerated this week after prominent industry leaders called for a slowdown in AI model releases, citing risks of large-scale cyberattacks and potential misuse in biological weapons development.
Despite the negative sentiment, analysts point to Broadcom's robust fundamentals as evidence that the selloff may have created a buying opportunity. The company's fiscal second-quarter revenue surged 48% year over year to $22 billion, propelled by its AI semiconductor segment, which saw revenue jump 104% to $10.8 billion. Demand for its AI accelerators and networking tools remains strong, with major clients including OpenAI and Apple.
Management raised its AI semiconductor revenue outlook for the third quarter to over $16 billion, a 200% increase from the same period last year. This guidance has prompted analysts to revise their estimates upward. Consensus now projects total Q3 revenue of $34.8 billion, up 93% year over year, and Q4 revenue of $36.94 billion, up 91%. For the full year, analysts expect revenue to reach $105.9 billion, with further growth of more than 50% anticipated over the next two years.
Broadcom's profitability is also expected to improve significantly. Analysts forecast earnings per share of $11.6 this year, up from $6.8 in the prior year, and $19.38 next year. The company's partnership with OpenAI has been a key growth driver; the two firms recently unveiled a custom chip named Jalapeno, which OpenAI claims outperforms Nvidia's offerings in certain workloads.
From a valuation perspective, Broadcom appears reasonably priced relative to its growth trajectory. The stock trades at a forward price-to-earnings ratio of 29, only slightly above its five-year average of 27. More notably, its forward PEG ratio stands at 0.53, well below the sector median of 1.16 and its own five-year average of 1.38, suggesting the market may be underpricing future earnings growth.
Technically, AVGO has broken below key support levels, including the $356 mark that held during July and August, and has fallen beneath the 61.8% Fibonacci retracement and the 50-day moving average. While the near-term trend remains bearish, some analysts believe the stock could find a floor around $300 before resuming an upward move once AI safety concerns subside.
The broader AI selloff has affected many companies, as seen in Dell's recent slide and weakness in memory stocks. However, Broadcom's strong guidance and strategic positioning in custom AI chips differentiate it from peers. The company's ability to consistently beat expectations adds to the case for a rebound.
Investors should note that Broadcom's upcoming earnings report could serve as a catalyst. Options markets imply a 7% swing following the release, underscoring the uncertainty. Still, for those with a long-term horizon, the current pullback may represent an attractive entry point, especially given the company's dominant role in AI infrastructure.
This article is for informational purposes only and does not constitute financial advice.
