AVGO Drops on Guidance: 4 ETFs to Buy the Dip

Broadcom (AVGO) reported fiscal Q3 earnings that beat analyst expectations on both revenue and earnings. Revenue surged 86% year-over-year to $13.07 billion, driven by strong demand for AI networking chips and infrastructure software. Adjusted EPS came in at $10.54, up 96% from the prior year, easily topping the consensus estimate of $10.43.

However, the stock fell in after-hours trading despite the beat. The culprit was the company's Q4 revenue guidance of approximately $14 billion, which came in slightly below the Street's expectation of $14.1 billion. Investors, accustomed to Broadcom's habit of guiding conservatively and then beating, were nonetheless disappointed by the lack of a bigger raise.

Another concern is the company's heavy reliance on a small number of customers for its AI-related revenue. Broadcom's custom AI accelerators (XPUs) are sold primarily to a few hyperscale cloud providers, and any slowdown in their spending could hit growth.

Additionally, management noted that some of its AI products have higher memory content, which could pressure gross margins in the near term. This added to the cautious tone around the stock.

Despite the dip, Broadcom's core business remains robust. AI revenue grew 221% year-over-year, and the company raised its full-year AI revenue outlook to $12 billion, up from the previous $11 billion. The long-term story of AI infrastructure spending appears intact.

Broadcom is a key player in the semiconductor industry, particularly in AI networking and custom accelerators. Its stock performance has a significant impact on the broader tech sector and semiconductor ETFs. When AVGO drops, it drags down ETFs that hold it, but it also creates a potential buying opportunity for investors who believe in the long-term AI trend.

The Q4 guidance miss suggests that even high-flying AI stocks may face short-term headwinds. However, the underlying demand for AI infrastructure remains strong, and Broadcom's management is confident in its growth trajectory. The stock's decline could be seen as a healthy correction after a massive run-up, bringing valuations to more reasonable levels.

For investors, the key question is whether the dip is a buying opportunity or a sign of further weakness. Given the company's strong fundamentals and the secular growth in AI, many analysts view the pullback as temporary. But the concentration risk and margin pressures are worth monitoring.

Semiconductor ETFs offer a way to gain exposure to Broadcom and other chipmakers while diversifying away single-stock risk. These ETFs have been top performers this year, and their holdings include many companies benefiting from AI, such as NVIDIA, AMD, and TSMC.

In the long run, the AI revolution is still in its early stages, and companies like Broadcom are well-positioned to capitalize on it. The current dip may be an opportunity for investors to add exposure at a more attractive price.