AVGO Selloff Sets Up Contrarian Buy Ahead of Earnings

Broadcom shares have been sliding for two weeks straight, down in the mid-teens percentage-wise heading into Tuesday's fiscal third-quarter earnings report. That kind of drawdown right before a print usually means one thing: the market has already made up its mind about what's coming.

This time, the bears might be early. Mizuho's Jordan Klein flagged the setup in a note picked up widely this week, arguing the selloff has priced in a worst-case scenario around Broadcom's custom AI chip business that CEO Hock Tan is unlikely to confirm.

The bear case centers on Google. Alphabet has been building out its own in-house AI chips, and investors have spent months worrying that success there means lost share for Broadcom's custom ASIC business, where Google is the single largest customer.

Wall Street's numbers tell a different story than the price action. Analysts expect Q3 EPS of $3.22, a 90.5% jump from a year ago, on revenue of roughly $29.24 billion, up 83.3% year-over-year.

Benchmark's Cody Acree reiterated a Buy rating with a $545 price target this week, arguing the pullback has made the stock more attractive rather than less. His own model runs slightly ahead of Street consensus, calling for $29.4 billion in revenue and $3.24 in EPS.

The broader analyst community isn't far behind: the Street-wide consensus rating on AVGO is Strong Buy, with an average price target of $512.36 — implying roughly 39% upside from current levels near $370.

"CEO Hock Tan NEVER HAS TWO DUD QTRS IN A ROW. It has been 7 full yrs since AVGO stock traded down post back-to-back earnings." — Jordan Klein, TMT Sector Specialist, Mizuho

That track record is the crux of the contrarian call. Broadcom fell about 12% in a single session after its June report despite solid underlying numbers, because guidance didn't clear the AI-growth bar investors had set. Klein's bet is that Tan doesn't let it happen twice, especially with rivals now setting a high bar of their own.

Both Nvidia and Marvell used their recent earnings calls to talk up accelerating out-year revenue growth. That puts pressure on Tan to match the tone, not just the numbers, when he addresses investors this week.

There's also money following the thesis, not just words. ARK Invest bought 55,131 AVGO shares on August 28 — worth more than $20 million — its second purchase of the stock in a week, notably while trimming its AMD position at the same time.

The risk here isn't small. Broadcom historically moves two to three times more than Nvidia after earnings, so however this goes, it won't be a quiet move. MediaTek and Marvell have both introduced competing AI networking and inference products that could chip away at Broadcom's edge over time, even if neither poses an immediate threat to its core TPU partnership with Google.

For investors watching the print, the number that matters most isn't Q3 — it's what Tan says about fiscal 2027 and 2028. Acree's note pointed to management previously guiding toward roughly 10 gigawatts of AI chip shipments in fiscal 2027, with planning already underway for 2028-29. Confirmation or expansion of that runway is the upside catalyst; silence on it would validate the bears.

Anyone considering a position ahead of Tuesday's report should size it knowing both directions are live. A stronger-than-feared guide could close a big chunk of that 39% gap to the average target fast. A second soft quarter could extend the drawdown further before support shows up.

Watch for two specific things on the call: any hard numbers on the Google ASIC relationship beyond vague reassurance, and whether management extends its AI revenue visibility into 2028. Both were flagged by analysts as the swing factors for how the stock trades afterward.

Bottom line: Broadcom's chart looks ugly, but the fundamentals and the smart money buying into the dip suggest the sentiment reset has gone further than the business has.