- Broadcom stock has jumped by 10% from its lowest point this month.
- The rebound coincided with the rally in other tech companies.
- Technicals suggest that the stock has more downside to go.
InvestingCube chart · Yahoo Finance data
Broadcom stock jumped by nearly 10% on Monday as American rotated to technology stocks after last week’s plunge. AVGO jumped to $320, up by over 12% from its lowest point this month. Still, despite the rebound, the stock remains substantially lower than the year-to-date high of $494.
Broadcom Stock Jumps as AI Companies Rebound
AVGO stock has rebounded as investors rotate to companies in the artificial intelligence industry. The Nasdaq 100 Index, which tracks the biggest technology companies, jumped by over 600 points, even as NVIDIA tumbled by over 5%.
Broadcom has some of the best fundamentals in the technology industry, helped by the rising demand for its products. The most recent results showed that its revenue jumped by 48% in the second quarter to over $22.1 billion.
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Most of the revenue growth was driven by its AI semiconductor business, with its revenue soaring by 143% to $10.8 billion. The management believes that the segment’s revenue jumped by 200% in the third quarter to $16 billion.
Most importantly, analysts expect the company’s revenue growth to accelerate in the coming quarters and years. The upcoming results are expected to show that its third-quarter revenue jumped by 94% to $34 billion, with earnings per share (EPS) rising from $1.95 to $3.84. Broadcom often publishes stronger-than-expected earnings reports and the trend may continue.
Meanwhile, Broadcom has become highly undervalued considering its strong revenue growth. The company has a forward price-to-earnings ratio of 25, much lower than the five-year average of 28. Also, the company has a Rule-of-40 metric of 92%, which is calculated by adding its forward revenue growth of 50% and its profit margin of 42%.
These metrics explain why analysts are highly bullish on the company. The average estimate among analysts is $530, up by 65% from the current level. BNP Paribas sees it rising to $715, much higher than where it is today.
AVGO Stock Price Technical Analysis
Broadcom stock chart | Source: TradingView
The daily chart shows that the Broadcom share price bottomed at $291, its lowest on March 30, which explains why it is rebounding. That support level was slightly above the 61.8% Fibonacci Retracement level.
The stock has moved below the 50-day moving average and has formed a head-and-shoulders pattern, a common bearish reversal sign. Therefore, there is a risk that the stock will have a bearish breakout.
If this happens, the next key target to watch will be at $291, its lowest point this month. A move below that level will point to more downside, potentially to $250.
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Anonymous · no sign-up · results from the last 30 days · not investment advice