Confirming that the bar is high for artificial intelligence (AI) semiconductor makers’ earnings reports, shares of Broadcom (AVGO) plunged 12.59% on June 4, a day after the chip giant delivered quarterly results. The results weren’t the problem. It was a lack of a positive update regarding AI semiconductor demand.
Combine the stock’s slide, which resulted in $286 billion in lost market capitalization, with some reserved commentary from analysts and price target cuts, and June 4 was indeed a good day to be involved with the Direxion Daily AVGO Bear 1X Shares (AVS). AVS is an inverse, though not levered, ETF, so its June 4 gain of 12.36% nearly mirrored the decline notched by the underlying stock.
Macquarie downgraded Broadcom while cutting its price target on the AI stock. The research firm’s commentary may be welcome to traders looking for post-earnings reasons to consider the bearish AVS.
“Macquarie analysts said Broadcom’s dominant position in the fast-growing AI application-specific integrated circuit (ASIC) market is facing new competitive pressure. Google, historically dependent on Broadcom for its AI chip supply chain, is now working with MediaTek while simultaneously expanding internal chip-development efforts. As a result, Macquarie expects Broadcom’s market share to decline significantly between 2027 and 2028,” according to Investing.com.
Don’t Forget AVS’s Bullish Cousin
Obviously, June 4 was unkind to Direxion Daily AVGO Bull 2X (AVL), which attempts to deliver 200% of the daily performance of Broadcom share. With the stock notching one of the worst one-day market cap erosions in market history, the geared AVL was punished.
Rightfully so, that may scare some less experienced traders from considering this leveraged ETF. But cooler heads could prevail with regards to Broadcom stock, possibly setting the stage for a rebound — one that could also lift AVL’s fortunes.
“We believe Broadcom is guiding conservatively, and see the $100 billion fiscal 2027 target as a sandbag. Management expects to ship capacity for 10 gigawatts of compute in 2027, and we believe it will earn well above $10 billion per gigawatt,” said Morningstar analyst William Kerwin.
Perhaps adding to the case for occasional, cautious near-term use of the bullish AVL is the notion that, following the June 4 slide, Broadcom may be offering some value.
“We raise our fair value estimate for wide-moat Broadcom to $650, from $550. We’re confident in rapid long-term XPU growth, and have grown more constructive on incremental margins from these custom chips. With the selloff reaction, Broadcom remains one of our top picks in semis,” added Kerwin.
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