Video summary
Broadcom recently reported strong financial results with profits tripling and revenue nearly doubling, yet its stock price fell significantly instead of rising alongside the broader market. This divergence highlights a common phenomenon where investor expectations often outweigh actual earnings data; in this case, the market reacted negatively because the company's forward guidance for fiscal year 2028 was perceived as slightly light by some hedge funds. While the report alleviated concerns regarding the Google partnership with Marvell and provided positive visibility, the stock struggled to break out despite a rallying market just before a holiday. The decline appears driven largely by short-term inefficiencies and liquidations within the hedge fund sector rather than a fundamental flaw in the company's long-term prospects.
The core of the discussion centered on how Wall Street analysts and institutional investors are recalibrating their valuation models for semiconductor leaders like Broadcom and Marvell. Jay Hatfield from Infrastructure Capital Advisors explained that while these companies have delivered exceptional growth, they may be approaching peak earnings potential, which warrants a more conservative price-to-earnings multiple of around 15 times rather than the higher multiples previously enjoyed. Consequently, the firm adjusted its price target for Broadcom down to $450, reflecting this shift in valuation logic. Despite these short-term headwinds and the volatility caused by hedge fund unwinds, the analysts maintain a bullish long-term stance, believing that the stock will eventually re-rate to meet these new, more reasonable expectations as supply constraints ease.
Looking ahead, the outlook for the semiconductor sector remains complex due to ongoing debates about whether the industry is entering a zero-sum game between hardware and software stocks or if both can rally together. Although there are upcoming IPOs and continued developments in artificial intelligence that could drive future growth, experts caution that it is too early to predict definitive price movements for these high-flying names. The conversation suggests that while Broadcom could potentially surge past $500, it also faces the risk of further declines if market sentiment remains fragile. Ultimately, the consensus among the panelists is that investors should ignore the noisy short-term fluctuations caused by trading inefficiencies and focus on the longer-term catalysts, such as the ramp-up in new product cycles for Marvell, which are expected to support a gradual recovery toward adjusted price targets over the coming year.
Read the full video transcript
Time for the watchlist panel, and we are
looking at Broadcom's earnings. So,
joining us to discuss this, Melissa
Armao, founder, owner of The Stock
Swoosh, and Jay Hatfield, CEO and CIO
Infrastructure Capital [music] Advisors.
Good afternoon to both of you. Melissa,
let's kick things off with you. The
earnings were good. Why is the stock
down?
>> This is the perfect example of if you
want to trade the earnings, you're not
necessarily going to get the move you
want because if you thought, "Oh, good
earnings, the stock's going to be up."
That didn't happen today. So, sometimes
you have great earnings, the stock
falls. Sometimes you have bad earnings,
and the stock rallies. So, the stock
fell $30 from yesterday till today, and
fell tremendously this morning while the
market's rallying. I mean, look at the
market right now. The market is breaking
out 2 days before a holiday, which is
kind of interesting, and AVGO can't get
a breath of life. Now, it doesn't mean
that this stock is not going to recover.
It's bouncing here this afternoon, but
the last time the stock made brand new
all-time highs was several months ago.
So, whatever the expectations are on
this, they just didn't seem to be
meeting the expectations that the street
sees for it, or it would have had a
positive reaction today, and been up
with the market and everything else
today. I mean, Nvidia's rallying.
There's lots of things in the sector
that are rallying right now, and this is
not.
>> A lot of crosscurrents, as you say, but
we've come off the lows now. To your
point, some of the semiconductor chips
are actually turning around now, turning
positive, and Broadcom, which was down
about 6% at the start of the session,
down only 3% as we stand. Jay, I mean,
what do you make of this? Because there
was a lot to like in this report. I
mean, tripling profits, nearly doubling
revenue, good visibility. It just seemed
to be the guidance that was the issue.
Do you think it also alleviated some of
Wall Street's concerns going into the
print about what it would say about this
Google partnership with Marvell?
>> Well, what the the key factor to focus
on was
the guidance for fiscal 28.
They raised guidance on EPS
to $30 from 25.
And so that was positive cuz last call
it was way more of a disaster because
Hock Tan gave no guidance.
And
so that was but there was one
disappointing element and I agree with
the prior comments. There's a lot of
hedge funds in these names
and they were constrained on revenue by
supply. And so that even though there
was a guide up of $5 probably
disappointed a lot of hedge funds.
And I think the key to analyzing today's
market is a hedge fund blow up. Most of
these chip names are way over
um the hedge funds are way too long
them.
But we still hold Broadcom in our our um
QVAL ETF and we do have a 450 target. We
think it's going to re-rate to only 15
times
28 earnings but we still like it and it
is coming back and today's
[clears throat]
movements are mostly we believe hedge
fund unwinds liquidations.
>> Okay.
Okay, it kind of makes sense because
obviously we've seen this back and forth
between hardwares and softwares and
softwares are up on the day and you know
there was some thinking maybe in the
last couple of weeks that maybe we were
getting out of this kind of zero sum
game where these two sectors could
actually rally in unison but we're kind
of back to this ping pong match here. So
maybe the technicals make sense but yes.
Look, the only blemish that was obvious
seemed to be that the Q4 guidance came
in a tad light. So in that case um Lisa,
I'm just wondering what you believe the
future looks like for this company
particularly with the Google Marvell
news um and obviously what we've heard
from Nvidia today as well.
>> Well, Marvell's rallied today but
Marvell remember was down on earnings
too. That was about a week ago or so.
So, that that actually sold off quite a
lot. Went all the way down to 200 on the
earnings. It's coming back today. It's
rallying today with the market. But,
that did not react well to the earnings,
too. I think it's too early to say with
all of these companies. They can give
good outlook for the future. They can
give bad outlook for the future. There's
a lot of discussions going on right now
around AI. Again, we have these IPOs
that that are going to be coming out in
the next several months. I don't think
till 2027. So, I mean, I think it's too
early to say. They're saying what they
think they need to say. These stocks
could run up and blow over the highs.
Again, AVGO could run up over 500 or it
could continue lower and crash. I think
they're giving the best numbers that
they can give at this time. Given the
moves that the stocks have had in the
last 6 to 12 months, though, what do you
expect? I mean, again, even talking
about investing for a hedge fund, if you
really like this, would you get out of
this today? You thought this was going
to double in the next 12 months with all
the new IPOs that are coming out. Like I
said, why would you answer this today?
But, somebody did. So, I think it's just
too early to call.
>> Okay, Dana. I do see you have a $500
price target on AVGO. Is that correct?
I'm just wondering, um, you know, what
gets us there? And and your other top
picks, um, Marvell is up there off the
back of this a Google announcement. Just
talk us through all of that.
>> So, Marvell clearly underperformed
because they did not give guidance
>> [clears throat]
>> on particularly '29 is when they're
going to have the big ramp. And they are
going to give that on October 6th. Um,
so, that's [clears throat] one of our
biggest holdings in QVAL. And there is a
catalyst there. We [clears throat]
actually lowered our target way last
night to 450 on on Broadcom cuz I think
with particularly these larger
companies, that
that's [clears throat] it's basically
the opposite of what the hedge funds
were thinking. They thought it was great
to be in chips and terrible terrible to
be in hyperscalers.
But, really, chips are probably near
peak earnings. So they deserve more like
a 15 multiple. So we tried to be more
reasonable and reflect
this possible [clears throat]
peak and say they'll trade at 15 times
28 [clears throat] earnings. So we're
still long.
I wouldn't get too concerned by these
short-term moves. There was a lot of
inefficient trading going on today.
So for [clears throat] longer-term
investors, we wait for this ramp to kick
in and have this super conservative
multiple 15 times. I think it'll go back
to 450 over the next year.
Okay, 450 your price target adjusted
after earnings. Guys, thanks so much for
joining me today. Melissa Armo, the
stock swish and Jay Hatfield
Infrastructure Capital Advisors joining
me there on Broadcom's earnings.