Broadcom Gets New Price Target as AI Rivals Nvidia, AMD Face Headwinds
Swiss banking giant UBS made a gutsy change to its AVGO outlook as chipmaking rivals struggle.
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Recently, we reduced our positions in Nvidia (NVDA) and Advanced Micro Devices (AMD) by half. Those positions had grown in size as the stocks appreciated. When the charts indicated possible difficulty ahead, we rang the register.
But there was one AI chipmaker that we held onto — in fact, we still maintain a full position in this stock. That name is Broadcom (AVGO) , which closed at an all-time high on Tuesday.
Broadcom rallied on news that UBS raised its target price from $415 to $472. The Swiss bank took this action as Broadcom prepares to report earnings after the close on December 11. UBS upped its price target due to the growth potential of the AI chip segment, as well as Broadcom’s partnership with Alphabet (GOOG) .
Charts Held the Key
Our analysis was much simpler. We simply didn’t care for Nvidia’s chart, which appears to have formed a bearish head and shoulders pattern (shaded yellow). Nvidia has traded below its 50-day moving average (blue) every day since November 20.
Advanced Micro Devices has also traded below its 50-day moving average (blue) every day since November 20. This stock appears to have formed a rounded top pattern (shaded yellow). The price is now drifting away from that formation, but has failed to rally.
Both stocks have barely moved since we trimmed our positions on November 26. Since then, Nvidia has gained about 3%, and AMD has climbed by about 3.25%.
Broadcom Is Crushing Nvidia and AMD
Meanwhile, shares of Broadcom have gained 18.5% over that same period.
Broadcom continues to ride its bullish trendline (black dotted line), which has been intact since April. The stock has closed above its 50-day moving average (blue) for 11 consecutive sessions. That moving average is currently rising, along with Broadcom’s 200-day moving average (red), a bullish sign.
I generally operate under the premise that I never have all the information necessary to make a well-informed investment decision. Instead, I look to the charts, where all of the available information should be reflected.
This applies to UBS's increased price target for Broadcom. It took guts for the bank's analysts to make that call just days ahead of earnings.
The timing of that move makes me wonder if analysts at the Swiss banking giant have found something beyond the obvious. Yes, we all know AI will be huge, but why is Broadcom outperforming Nvidia and Advanced Micro by such a wide margin over the past few weeks?
Bottom Line
Am I nervous holding Broadcom into earnings? No more than any other stock. Usually, we assume that a stock rallying into earnings has good news on tap. Broadcom shares have gained 75% this year, and the stock’s continuing rally could be an indication that a strong earnings report is on the horizon.
At the time of publication, Ponsi was long AVGO, NVDA and AMD.
