Broadcom stock falls to a key support: is it about to surge after earnings?

Broadcom stock has dropped to a crucial support level, and the upcoming earnings report will help to determine whether the recent retreat will continue or whether the shares will rebound. AVGO trades at $370, down by 25% from its highest point this year.

Broadcom expected to publish strong earnings

Broadcom has become one of the biggest technology companies globally, with its market capitalization soaring to over $1.7 trillion. It owns top companies like VMware, CA Technologies, Symantec, and Broadcom Communications. 

The company has emerged as a major player in the artificial intelligence industry, driven by a growing network of strategic partnerships. Most recently, it unveiled Jalapeño, a custom chip developed for OpenAI, which reportedly outperformed Nvidia’s chips in certain performance benchmarks.

Broadcom counts the biggest companies in the world, including large names like Apple, Alphabet, Anthropic, and Microsoft. These partnerships, together with its acquisitions, have helped its revenue continue rising. Its annual revenue has jumped from $27.5 billion in 2021 to $75.4 billion in the trailing twelve months.

The most recent results showed that Broadcom’s revenue jumped by 48% in the second quarter of the year to over $22.18 billion. This growth was driven by a 143% YoY gain from its AI semiconductor business. 

All signs are that the company’s business continued growing in the third quarter as the artificial intelligence spending accelerated. All of its top customers published strong numbers and guidance. 

For example, Apple announced strong financial results, and this growth may continue as it launches a new foldable phone. Also, companies like Google and Amazon all committed to keep spending.

Yahoo Finance data shows that analysts expect the upcoming results to show that its revenue soared by 84% last quarter to $29 billion. Its earnings-per-share (EPS) is also expected to move from $1.69 in Q3’25 to $3.24. Broadcom has a long record of doing better than expected.

Strong earnings to justify its valuation

Analysts are highly optimistic about Broadcom, with most who track it having a bullish outlook. Royal Bank of Canada has a target of $400, while BMO has a target of $455. The most optimistic analyst is from Evercore who sees the shares jumping to $582, up sharply from where it is today. In a statement this week, BakerAvenue’s King Lip called Broadcom a top pick ahead of its earnings.

The main issue, however, is that Broadcom’s valuation has become quite expensive, meaning that it will need to announce a big beat and raise, and possibly, a bigger buyback.

The company trades with a forward price-to-earnings ratio of 31.7, higher than the sector median of 22.6. Its multiple is also higher than the five-year average. It is also higher than that of other technology companies like Nvidia and Micron.

AVGO stock has moved to a crucial support level

Broadcom stock | Source: TradingView

The daily chart shows that the AVGO stock peaked at $494 in June and formed an abandoned baby pattern. This pattern is usually one of the most common bearish reversal signs in technical analysis. 

The stock has now plunged and found a strong support level of $356, its lowest level on July 2nd and August 26. This could be a sign that it has formed a double-bottom pattern, a common bullish reversal sign. This support is also along the 61.8% Fibonacci Retracement level and the 200-day moving average.

Therefore, the stock will likely bounce back in the coming days, potentially to the psychological level of $400.