Why Is Broadcom Stock Falling Thursday?

Broadcom Inc. (NASDAQ:AVGO) stock fell more than 3% in Thursday’s premarket trading. Investors focused on the company’s soft outlook. Nasdaq futures were little changed while S&P 500 futures have gained 0.08%.

The company reported fiscal third-quarter revenue of $29.59 billion after Wednesday’s close. That beat the $29.36 billion estimate. Adjusted earnings of $3.32 per share also topped the $3.24 estimate.

However, Broadcom forecast fourth-quarter revenue of about $34.8 billion. That fell short of the $35.03 billion consensus estimate.

Bernstein Calls Broadcom’s Quarter Strong

Broadcom entered the report with high expectations tied to artificial intelligence demand. The stock’s weak technical setup also added pressure. Recent rebounds have struggled to hold as shares remain below key moving averages.

However, Bernstein analyst Stacy Rasgon said the underlying results remained strong. "The quarter was actually very, very good," Rasgon told CNBC on Wednesday.

Rasgon said Broadcom delivered an overall beat, while semiconductor revenue came in slightly above expectations. Infrastructure software revenue missed estimates, but he described the shortfall as minor.

Gross margin reached 75%, about 1 percentage point above Wall Street’s estimate. Broadcom also posted strong artificial intelligence revenue.

Investors Await 2027 AI Outlook

Rasgon called Broadcom’s fourth-quarter guidance "in-lineish." He said the operating margin outlook was about 50 basis points below expectations, possibly because of higher memory prices.

However, Rasgon said the earnings call would carry more weight than the initial report. Investors are looking for an update on Broadcom’s AI semiconductor revenue outlook for 2027.

The company previously projected more than $100 billion in AI semiconductor revenue. Rasgon said investors widely expect Broadcom to raise that forecast. He also wants management to provide more insight into 2028 demand.

Broadcom has discussed financing arrangements with Apollo Global Management Inc. (NYSE:APO) and Blackstone Inc. (NYSE:BX). Those efforts could fund significant data center capacity through 2028, Rasgon said.

Custom Chip Competition Remains a Concern

Investors have also questioned whether Broadcom could lose custom chip business to rivals such as MediaTek Inc. and other semiconductor companies.

Rasgon acknowledged the competitive risk but said the AI market could be large enough to support several suppliers. Broadcom, MediaTek, NVIDIA Corp. (NASDAQ:NVDA), Advanced Micro Devices Inc. (NASDAQ:AMD) and Qualcomm Inc. (NASDAQ:QCOM) have all pointed to strong demand, he added.

Rasgon said Broadcom’s valuation has fallen alongside other chip stocks. Still, management’s long-term AI outlook could determine whether investors buy into the stock’s next leg of growth.

Technical Analysis

Broadcom traded 7.7% below its 20-day simple moving average. It was also 7.6% below its 50-day SMA, 10.8% below its 100-day SMA and 3.9% below its 200-day SMA.

This setup suggests that rallies could face selling pressure. Several moving averages also cluster in the mid-to-high $300 range.

Meanwhile, the MACD remains below its signal line, and the histogram is negative. These signals point to weakening momentum.

The longer-term picture is mixed. Broadcom formed a golden cross in April when its 50-day SMA moved above its 200-day SMA. However, the stock has since fallen below the 200-day level.

Resistance stands near $407.50. Support sits around the psychologically important $350 level.

Analyst Outlook

Broadcom carries a Buy consensus rating and an average price forecast of $507.91.

RBC Capital maintained a Sector Perform rating and a $400 price forecast on Aug. 26. BMO Capital initiated coverage with an Outperform rating and a $455 forecast on Aug. 21. Erste Group downgraded the stock to Hold on July 7.

Top ETF Exposure

Broadcom has a 9.94% weighting in the Invesco PHLX Semiconductor ETF (NASDAQ:SOXQ). It also accounts for 8.49% of the iShares Expanded Tech Sector ETF (NYSE:IGM) and 8.12% of the iShares Semiconductor ETF (NASDAQ:SOXX).

Its large weight means flows into or out of these funds can influence the stock.

AVGO Stock Price Activity: Broadcom shares were down 2.79% at $356.99 during premarket trading on Thursday, according to Benzinga Pro data.

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