Broadcom Corp. (NASDAQ: AVGO) shares, which surged early in 2023, are now in a consolidation phase after peaking in late June. Despite this pause, the stock has drawn attention from influential figures like CNBC’s Mad Money host Jim Cramer, who recently endorsed the company as “a stock I like very much.” Traders and investors, however, may want to evaluate how sentiment and momentum are evolving before taking positions.
Stephanie Link, Chief Investment Strategist at Hightower Advisors, recently bought Broadcom shares, which Cramer disclosed on social media. However, Cramer’s bullishness has sparked mixed reactions. Some market observers took to social media, highlighting the historical tendency for stocks to falter following Cramer’s public endorsements. One user pointed out, “It’s up $30 (21%) or so in 5 days after a dip and it’s near all-time highs, then Jim endorses it…”—implying caution for those chasing the recent rally.
AI and Broadcom’s Rising Status
Broadcom’s rise to prominence is closely tied to its growing role in artificial intelligence (AI). Once a quieter player in the tech landscape, Broadcom now holds the distinction of being the 11th most valuable global corporation, boasting a market capitalization north of $766 billion. Among tech firms, it has the highest market cap outside of the “Magnificent Seven” companies, excluding Tesla (TSLA) and Taiwan Semiconductor (TSMC).
The company’s recent success stems in large part from its strong performance in AI-related services and robust demand in its VMware business. Broadcom’s third-quarter results exceeded analysts’ expectations, driven by impressive AI revenues, and the company raised its AI revenue guidance for both the fourth quarter and the full fiscal year. However, the market’s initial response was negative due to slightly underwhelming fourth-quarter guidance, sending Broadcom’s stock down by over 10%.
Since then, shares have rebounded sharply, rising nearly 20% from their post-earnings lows. Still, traders might be encouraged by Broadcom’s forward price-to-earnings (P/E) multiple of 26.81—offering relative value compared to Nvidia (NASDAQ: NVDA), which commands a much higher multiple. For investors, this presents a potential entry point in a market where AI is driving significant long-term growth, even as volatility persists.
Key Institutional Moves: Pelosi’s Call Options
For traders focused on tracking institutional or high-profile investor behavior, Congresswoman Nancy Pelosi’s investment activity has added another layer of intrigue to Broadcom. Pelosi, known for her strategic investments, purchased 20 Broadcom call options on June 24. These options, with a strike price of $800 and an expiration date in June 2025, have since been adjusted to reflect the company’s 10-for-1 stock split, reducing the strike price to $80. Pelosi’s bet came shortly after Broadcom’s strong second-quarter results and the announcement of the split, indicating that even major investors expect long-term upside.
Analysts’ Outlook: Potential Upside Ahead
Despite some volatility, Broadcom continues to attract positive attention from Wall Street analysts. According to TipRanks, the average price target for Broadcom sits at $198.66, implying a potential upside of over 21% from current levels. As the stock navigates its consolidation phase, this projection suggests the market may have already digested the short-term concerns over guidance, leaving room for further gains.
Conclusion
For traders and investors, Broadcom presents an interesting case of a tech stock balancing the excitement of AI-driven growth with occasional near-term volatility. With its strong AI business, attractive valuation relative to competitors, and backing from notable figures like Stephanie Link and Nancy Pelosi, Broadcom remains a stock to watch. Yet, caution is warranted, particularly given the stock’s consolidation phase and the mixed reaction to its recent earnings. Traders should keep an eye on technical signals for confirmation of the next breakout or continuation of the current sideways action.