Broadcom stock is bouncing back today as investors bought the dip in artificial intelligence (AI) companies. After bottoming at $328 on Friday, the stock rebounded to $340, a move that coincided with the surge in other artificial intelligence firms like CoreWeave and Nebius. Still, there is a risk that this sell-off is a dead-cat bounce.
Broadcom stock rebounds as Goldman Sachs upgrades CoreWeave
The main catalyst behind the ongoing Broadcom stock rebound is that Goldman Sachs upgraded CoreWeave from neutral to buy. The bank hiked the target from $106 to $139 per share, noting that the company has more room to grow.
In a separate statement, Dan Ives, the popular Yorkville analyst, said that CoreWeave had $104 billion in revenue backlog. These were commitments and not data centers built on hopes of finding tenants.
These statements helped to calm the storm in the AI space, with most companies being in the red. CoreWeave jumped by 7%, while other neocloud companies like Nebius, IREN, and Nvidia being in the green.
The risk, however, is that the ongoing rebound may be a dead-cat bounce or a bull trap. A DCB is a situation where an asset in a freefall bounces back briefly and then resumes the downward trend.
Broadcom has some strong fundamentals
AVGO stock has some of the best fundamentals in the AI space, which explains why analysts have a bullish outlook. The average estimate among analysts is $527, up by 60% from the current level. Piper Sandler has an overweight rating and a target of $460, while Citic Securities see it rising to $525. BNP Paribas analysts have a target of $715, while Evercore has a target of $578.
The company’s revenue and profitability growth is continuing. This trend will likely continue, thanks to its large multi-year deals with companies like OpenAI, Google and Amazon. Its partnership with OpenAI is for building its Jalapeno chip, which OpenAI believes performs better than those made by AMD and Nvidia.
The most recent earnings report showed that Broadcom’s revenue jumped by 48% in Q2 to over $22.1 billion. This surge was driven by its AI semiconductor segment, which made $10.8 billion in revenue, up by 143% from a year earlier.
Most notably, analysts expect the upcoming results to show that its revenue jumped by 93% to $35 billion. Its fourth-quarter figure will then jump by 91.5% to $37 billion. Broadcom tends to do better than estimates, meaning that the final figure will be higher than that.
The same growth is happening in terms of its profitability. Its Q3 earnings-per-share is expected to move to $3.83, much higher than the $1.9 it made in the same period last year.
AVGO stock technical analysis
The daily chart shows that Broadcom shares have been in a strong sell-off in the past few months. It has now dropped from a high of $493 in June to the current $336.
Worse, the stock has formed a death cross pattern, which happens when the 50-day and 200-day moving averages cross each other. This pattern usually leads to more downside over time.
Therefore, there are signs that the stock will continue falling, potentially to the next key target at $300. A move below that level will point to more downside. However, a jump above the resistance level of $350 will invalidate the bearish outlook.