Experienced traders and investors know that when it comes to semiconductor stocks, Nvidia (NVDA) is the marquee name. The company owes that, in large part, to its significant artificial intelligence (AI) footprint. However, Nvidia isn’t the only game in town regarding mega-cap AI chipmakers. Broadcom (AVGO) merits consideration, too.
After all, this is a $1.72 trillion company being discussed. That market capitalization is enough to make Broadcom the second-largest semiconductor stock. It falls behind only Nvidia, one of the largest tech companies by market value and one of the S&P 500’s top 10 components.
It’s not a stretch to say Broadcom is the Pepsi to Nvidia’s Coca-Cola, but that doesn’t imply that second fiddle can’t deliver top-tier gains. Broadcom is higher by almost 56% year-to-date. That confirms there have opportunities for short-term traders to capitalize with the Direxion Daily AVGO Bull 2X (AVL), an ETF designed to deliver double the daily performance of Broadcom shares.
AVL Could Come Up Aces
For traders with short time horizons, AVL could be a winner with the assistance of sell-side analysts. As of September 16, the stock resided around $360, slightly below the consensus price target of $367.80. However, that target could be primed for upward revisions.
For example, Macquarie Equity Research initiated coverage of the chipmaker on September 15 with a $420 price objective. That implies significant upside from current levels. Alone, that could spell opportunity with AVL. However, the research firm highlighted Broadcom’s dominant perch in the application-specific integrated circuit (ASIC) space. That could function as another catalyst for the stock and AVL.
“While ASIC requires longer design cycles and significant up-front investment, they offer unmatched performance per watt, system-level efficiency, and tighter integration across the compute rack,” noted Macquarie. “While smaller entrants such as MediaTek are beginning to emerge, we see Broadcom’s scale, track record, and customer relationships as key differentiators that should allow it to defend market leadership.”
Broadcom's Growth
There’s more to the Broadcom story and it could be favorable to the AVL outlook. Proving it’s a worthy rival and not just “little brother” to Nvidia, Broadcom recently landed a $10 billion custom order from ChatGPT parent OpenAI.
Plus, there’s growth. Broadcom’s fiscal fourth-quarter guidance implies 24% year-over-year sales growth. Should that outlook be topped — something the company has been known to do — that could be the ideal scenario in which to embrace AVL. There are other potential sparks that could benefit AVL.
“We see potential for even further upside for Broadcom’s XPU sales with three additional potential customers in talks with Broadcom. We believe the new $10 billion customer might be OpenAI for an inference chip. We also believe Apple and Arm are part of Broadcom’s custom AI chip pipeline," noted Morningstar’s William Kerwin.
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