Broadcom's Post-Earnings Slump: A Buying Opportunity in AI's Shadow?

Broadcom's stock fell 5% on June 5, 2025, after reporting Q2 earnings that narrowly beat expectations but failed to meet sky-high investor hopes. The dip has sparked a heated debate: Is this a buying opportunity in an AI-driven growth story, or does it signal overvaluation in a frothy semiconductor market? The answer hinges on three critical factors—valuation metrics, the sustainability of AI-related growth, and Broadcom's outsized influence in key ETFs.
The Earnings Crossroads: Growth vs. Expectations
Broadcom delivered solid results, with $15 billion in revenue (+20% YoY) and AI revenue surging 46% to $4.4 billion. The company also raised its full-year AI revenue forecast to a 60% growth rate, reinforcing its position as a leader in AI infrastructure. Yet shares dropped despite the beat, reflecting a market that had priced in perfection. Analysts at Melius Research noted the stock's 86% rise over the past year had already baked in much of this optimism.
The disconnect between results and reaction highlights a broader theme: investors now demand exponential growth from AI beneficiaries like Broadcom and NVIDIA. While Broadcom's AI trajectory is strong, its 40x forward P/E—higher than NVIDIA's 32.4x—suggests it has less room for error.
Valuation: A Tightrope Walk
Broadcom's premium valuation is justified only if its AI growth accelerates further. Here's why the market is divided:
- Bull Case: The company's AI revenue is on track to hit $5.1 billion in Q3 (+60% YoY), with CEO Hock Tan forecasting sustained momentum through 2026. Broadcom's $6.4 billion in free cash flow (up 44% YoY) also underpins its ability to invest in R&D.
- Bear Case: The stock's RSI hit 80 pre-earnings—a level that historically coincided with major pullbacks (December 2023, June 2024). A 6% YTD gain may now look overextended if AI hype fades.
The key question is whether Broadcom can grow into its multiple. At 40x earnings, even a modest miss on future guidance could trigger a sharp reevaluation.
ETF Exposure: Broadcom's Double-Edged Sword
Broadcom's 6.5% weight in the semiconductor ETF SMH and 4.3% stake in QQQ make it a linchpin for passive investors. Its 5% drop dragged SMH down 1.2% and SOXX (a broader semiconductor ETF) by 0.9%. This outsized influence means its stock is vulnerable to rotation-driven selling, even if fundamentals remain sound.
For active investors, this creates a paradox: owning Broadcom offers exposure to AI's upside but also exposes portfolios to ETF-driven volatility.
Technicals: Support Levels and the $200 Floor
Technically, the $250 level—formed by a rising wedge pattern and three prior peaks—is critical. A breach below this could test the $235 zone (February's countertrend peak) and eventually the $200 psychological floor. Resistance at $265 (pre-earnings high) remains a hurdle for a rebound.
The AI Growth Sustainability Debate
Broadcom's AI narrative hinges on two factors:
1. Inference Demand Surge: CEO Tan expects AI chip demand to accelerate by late 2026 as enterprises shift focus from training to inference workloads. This could boost Broadcom's networking and custom accelerator sales.
2. Competition: NVIDIA's dominance in AI GPUs looms large, but Broadcom's strength in data center infrastructure (switches, software) offers a complementary—and less headline-driven—growth story.
Analysts at Visible Alpha remain bullish, with 13 of 14 maintaining “buy” ratings. However, the average $251.70 price target implies modest upside from current levels, suggesting the market is already skeptical of further gains.
Investment Takeaway: A Buy Below $235, But Beware the Ceiling
For long-term investors, the dip presents a cautious opportunity—if patience is key. Consider accumulating positions below $235, where a rebound toward $265 becomes plausible if AI revenue beats Q3 guidance. Historically, such post-earnings dips have offered opportunities, with a backtest showing a 35.5% return from 2020-2025 when employing this strategy, though with a maximum drawdown of 16.04%. This underscores the importance of risk management, such as tight stop-losses near $200. However, a sustained move above $270 would require a broader market rotation into semiconductors or a breakthrough in Broadcom's AI partnerships.
Avoid overexposure above $250, as the RSI over 80 and ETF dynamics could amplify volatility. Short-term traders might use the $200-$235 zone as a floor to scale into positions, while setting tight stops near $200.
Final Verdict
Broadcom's slump is less about fundamentals than overexuberance. The stock remains a critical player in AI's future, but its valuation demands perfection. Investors must decide: Is Broadcom a must-own for the next leg of AI growth, or a victim of its own success? The answer lies in whether the market's high bar for AI heroes can be sustained. For now, the dip offers a strategic entry point—if you can stomach the volatility.
Comments
No comments yet