Broadcom’s Trillion-Dollar Tango: Will the Dance Continue?
Editor's note: Any and all references to time frames longer than one trading day are for purposes of market context only, and not recommendations of any holding time frame. Daily rebalancing ETFs are not meant to be held unmonitored for long periods. If you don't have the resources, time or inclination to constantly monitor and manage your positions, leveraged and inverse ETFs are not for you.
Investing in the funds involves a high degree of risk. Unlike traditional ETFs, or even other leveraged and/or inverse ETFs, these leveraged and/or inverse single-stock ETFs track the price of a single stock rather than an index, eliminating the benefits of diversification. Leveraged and inverse ETFs pursue daily leveraged investment objectives, which means they are riskier than alternatives which do not use leverage. They seek daily goals and should not be expected to track the underlying stock’s performance over periods longer than one day. They are not suitable for all investors and should be utilized only by investors who understand leverage risk and who actively manage their investments. The Funds will lose money if the underlying stock’s performance is flat, and it is possible that the Bull Fund will lose money even if the underlying stock’s performance increases, and the Bear Fund will lose money even if the underlying stock’s performance decreases, over a period longer than a single day. Investing in the Funds is not equivalent to investing directly in AVGO.
Following the latest earnings results, shares of Broadcom Inc. (Ticker: AVGO) exploded to new all-time highs, driving the company’s market capitalization past $1 trillion for the first time. The surge was fueled by notable growth in artificial intelligence (AI), with AI revenue soaring 220% to $12.2 billion. This robust financial performance highlights Broadcom's strong position in the tech sector, particularly in AI and other key growth areas, but after this rally higher, is the stock due for a pause or pullback?
Can AVGO Keep the Chips Stacked?
Broadcom has firmly established itself as a key player in the semiconductor space, particularly with its diversified product portfolio that spans multiple sectors, including wireless communication, enterprise software, data centers, and broadband. The company’s expansion into the software space, with its acquisition of CA Technologies and Symantec’s enterprise security business, has allowed it to strengthen its position in both the hardware and software departments.
Broadcom has been focused on strategic acquisitions to bolster its product lineup and ensure continued growth. Notably, the company has seen strong demand for its semiconductor solutions in 5G technology, cloud computing, and the increasing need for robust networking infrastructure.
Their leadership in the networking segment, especially with Ethernet switching and broadband components, is expected to benefit from continued growth in the deployment of 5G networks and cloud-based applications. Furthermore, Broadcom’s focus on high-margin products and operational efficiencies provides a solid foundation for sustaining profit growth.
Traders looking for a continuation of the recent trends in Broadcom may find a trade with Direxion’s Daily AVGO Bull 2X Shares (Ticker: AVL), which seeks daily investment results, before fees and expenses, of 200% of the performance of Broadcom Inc. common stock (Ticker: AVGO)
Below is a daily chart of AVGO as of December 13, 2024.
Source: TradingView.com
Candlestick charts display the high and low (the stick) and the open and close price (the body) of a security for a specific period. If the body is filled, it means the close was lower than the open. If the body is empty, it means the close was higher than the open.
The performance data quoted represents past performance. Past performance does not guarantee future results.
Is It Time for a Reset?
Even with the recent bullish news, one potential risk for Broadcom is its heavy reliance on a limited number of customers, particularly in the smartphone and wireless markets. One example is Apple, and any shift in Apple’s current business could lead to revenue volatility* for Broadcom. Not to mention, Broadcom is still vulnerable to the cyclical nature of the semiconductor industry, where demand fluctuations due to macroeconomic conditions or changes in consumer behavior could affect growth.
Another risk lies in Broadcom’s integration of past acquisitions. With the leadership’s strategy of expansion through acquisitions, they must successfully manage and integrate them into the business structure. Missteps in this area could impact profitability and operational efficiency.
Lastly, the prospect of tariff increases, trade tensions, and regulatory scrutiny in the U.S., particularly with foreign acquisitions or the company's reliance on China for production, could add additional pressure. Broadcom has already been subject to regulatory investigations and fines in the past, and any future changes in trade or policy could have a significant impact on its operations.
Traders that find Broadcom to be overextended in the near-term, or are at least looking to hedge the recent rally, may find a position with Direxion’s Daily AVGO Bear 1X Shares (Ticker: AVS), which seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) performance in common shares of Broadcom Inc. (Ticker: AVGO).
Additional Equity and Leveraged Sector Funds
Direxion offers traders multiple ways to take on leveraged, sector-based plays, in addition to offering individual equity plays aside from Broadcom. These include stocks like Microsoft, Meta, Apple, Amazon, Tesla and more. Investing in a Fund is not equivalent to investing directly in the underlying stock and involves high degree of risk.
But traders wanting to trade the broader tech sector with leverage may be interested in the Direxion Daily Technology Bull 3X Shares (Ticker: TECL) and the Direxion Daily Technology Bear 3X Shares (Ticker: TECS). These funds seek daily investment results, before fees and expenses, of 300%, or 300% of the inverse (or opposite), of the performance of the Technology Select Sector Index*.
For those seeking additional single stock ETFs, there is the Direxion Daily MSFT Bull 2X Shares (Ticker: MSFU) which seeks daily investment results, before fees and expenses, of 200% of the performance of Microsoft Corporation common stock, while the Direxion Daily MSFT Bear 1X Shares (Ticker: MSFD) seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) of Microsoft Corporation common stock.
The Direxion Daily META Bull 2X Shares (Ticker: METU) seeks daily investment results, before fees and expenses, of 200% of the performance of Meta Platforms, Inc. common stock, while the Direxion Daily META Bear 1X Shares (Ticker: METD) seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) of the performance of Meta Platforms, Inc. common stock.
The Direxion Daily AAPL Bull 2X Shares (Ticker: AAPU) seeks daily investment results, before fees and expenses, of 200% of the performance of Apple Inc. common stock (Ticker: AAPL) before fees and expenses, while the Direxion Daily AAPL Bear 1X Shares (Ticker: AAPD) seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) of the performance of Apple Inc. common stock (Ticker: AAPL).
The Direxion Daily AMZN Bull 2X Shares (Ticker: AMZU) seeks daily investment results, before fees and expenses, of 200% of the performance of Amazon.com, Inc. common stock, while the Direxion Daily AMZN Bear 1X Shares (Ticker: AMZD) seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) of the performance of Amazon.com, Inc. common stock.
*Definitions and Index Descriptions
An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain a Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.
The Funds have derived all disclosures contained in this document regarding Broadcom Inc. from publicly available documents. In connection with the offering of each Fund’s securities, neither the Funds, the Trust, nor the Adviser or any of its respective affiliates has participated in the preparation of such documents. Neither the Funds, the Trust nor the Adviser or any of its respective affiliates makes any representation that such publicly available documents or any other publicly available information regarding Broadcom Inc. is accurate or complete. Furthermore, the Funds cannot give any assurance that all events occurring prior to the date hereof (including events that would affect the accuracy or completeness of the publicly available documents described above) that would affect the trading price of Broadcom Inc. have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events concerning Broadcom Inc. could affect the value of a Fund’s investments with respect to Broadcom Inc. and therefore the value of the Funds.
The Technology Select Sector Index (IXTTR) is provided by S&P Dow Jones Indices and includes domestic companies from the technology sector which includes the following industries: computers and peripherals; software; diversified telecommunications services; communications equipment; semiconductors and semi-conductor equipment; internet software and services; IT services; electronic equipment, instruments and components; wireless telecommunication services; and office electronics.
Direxion Shares Risks – An investment in a Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with a Fund concentrating its investments in a particular security, industry, sector, or geographic region which can result in increased volatility. A Fund’s investments in derivatives such as futures contracts and swaps may pose risks in addition to, and greater than, those associated with directly investing in securities or other investments, including imperfect correlations with underlying investments or the Fund’s other portfolio holdings, higher price volatility and lack of availability. As a result, the value of an investment in a Fund may change quickly and without warning.
Leverage Risk – The Bull Fund obtains investment exposure in excess of its net assets by utilizing leverage and may lose more money in market conditions that are adverse to its investment objective than a fund that does not utilize leverage. A total loss may occur in a single day. Leverage will also have the effect of magnifying any differences in the Fund’s correlation with AVGO and may increase the volatility of the Bull Fund.
Daily Correlation Risk – A number of factors may affect the Bull Fund’s ability to achieve a high degree of correlation with AVGO and therefore achieve its daily leveraged investment objective. The Bull Fund’s exposure to AVGO is impacted by AVGO’s movement. Because of this, it is unlikely that the Bull Fund will be perfectly exposed to AVGO at the end of each day. The possibility of the Bull Fund being materially over- or under-exposed to AVGO increases on days when AVGO is volatile near the close of the trading day.
Daily Inverse Correlation Risk – A number of factors may affect the Bear Fund’s ability to achieve a high degree of inverse correlation with AVGO and therefore achieve its daily inverse investment objective. The Bear Fund’s exposure to AVGO is impacted by AVGO’s movement. Because of this, it is unlikely that the Bear Fund will be perfectly exposed to AVGO at the end of each day. The possibility of the Bear Fund being materially over- or under-exposed to AVGO increases on days when AVGO is volatile near the close of the trading day.
Broadcom Inc. – AVGO faces risks associated with: the highly competitive nature of the semiconductor industry; failure to realize expected benefits from mergers, acquisitions and other joint ventures; economic and market uncertainty; reduced demand for its products; potential concentration of revenues in a few large clients; geopolitical and economic events and pandemics; among other risks.
Semiconductor Industry Risk – Semiconductor companies may face intense competition, both domestically and internationally, may have limited product lines, markets, financial resources or personnel and may face risks related to the availability of materials.
Technology Sector Risk — The market prices of technology-related securities tend to exhibit a greater degree of market risk and sharp price fluctuations than other types of securities.
Additional risks of each Fund include Effects of Compounding and Market Volatility Risk, Derivatives Risk, Counterparty Risk, Rebalancing Risk, Intra-Day Investment Risk, Industry Concentration Risk, Market Risk, Indirect Investment Risk, and Cash Transaction Risk. Additionally, for the Direxion Daily AVGO Bear 1X Shares, Shorting or Inverse Risk. Please see the summary and full prospectuses for a more complete description of these and other risks of a Fund.