To The Moon

Broadcom (AVGO) reported strong results for its second fiscal quarter, setting a new record for revenue and exceeding earnings expectations. EPS rose over 40%, reflecting continued operational strength. AI-related revenue grew by 46%, which remains solid but marks a notable deceleration from the previous quarter’s 77% increase.

Looking ahead, Broadcom expects AI chip revenue to rise again in Q3—to $5.1 billion—which would mark the 10th consecutive quarter of AI chip revenue growth. However, this projection came in about 3.7% below the more optimistic analyst estimates, contributing to a dip in investor sentiment. The stock closed at $246.93 last week, down 5% on the day.

Why I’m Staying on the Sidelines

Broadcom is a fundamentally sound company, but despite the impressive numbers, I’m not inclined to buy at current levels. Here’s why:

1. Valuation Looks Stretched

AVGO is trading close to its 52-week high of $265.43 and far above the 52-week low of $128.50. With the stock already so far from its lows, much of the good news may already be priced in. I tend to avoid initiating positions near recent highs, especially when the valuation doesn't leave much room for error.

Broadcom (AVGO)

2. Slowing AI Growth

While 46% AI revenue growth is strong, the slowdown from 77% in the prior quarter could signal that early momentum is beginning to normalize. With the market heavily focused on AI-driven upside, even a modest deceleration can trigger volatility—especially when expectations are this high.

3. Dividend Not Compelling

Broadcom is known for returning capital to shareholders, but the current dividend yield feels modest relative to the stock price. The upcoming ex-dividend date is June 20, with a payout of $0.59 per share. For investors seeking income, there may be more attractive options available.

4. Cautious on Tech and AI Hype

The broader tech sector, particularly AI-related names, has seen massive gains over the past couple of years. While AI is a real and transformative trend, some valuations now reflect aggressive assumptions about long-term growth. I’m cautious about chasing names that have already benefited significantly from that narrative.

Bottom Line: Broadcom remains a high-quality business with strong fundamentals and a valuable AI footprint. But with the stock price near its highs, AI growth slowing, and the dividend yield offering limited downside protection, I don’t see a compelling reason to buy right now. If the stock pulls back or if growth re-accelerates meaningfully, I’d revisit the opportunity. For now, I’m comfortable watching from the sidelines.