Last Friday, shares of semiconductor giant Broadcom (AVGO) dipped nearly 6% on reports of a security vulnerability pertaining to the company’s VMware vCenter Syslog Server. Concerns about the state of the artificial intelligence (AI) funding market didn’t help matters, either.
With that pullback, Broadcom is 20.6% removed from its 52-week high, meaning that the widely followed AI stock is in a bear market. This implies that among single-stock ETFs, the Direxion Daily AVGO Bear 1X Shares (AVS) may be the path of least resistance for short-term traders looking to tap into this tech name.
Embracing the bearish AVS is a logical response to the current state of affairs with Broadcom stock, but risk-aware traders shouldn’t be hasty in dismissing the Direxion Daily AVGO Bull 2X (AVL) — an ETF designed to deliver 200% of the daily performance of the chip stock.
AVL Can Be Great Again
Some of the factors that could facilitate a Broadcom rebound are longer-ranging in nature, implying that traders must be judicious in their deployment of the leveraged AVI. However, the opportunities are there to make use of this ETF. Those include Broadcom’s status as arguably the most essential purveyor of AI compute outside of Nvidia (NVDA).
“We also expect it (Broadcom) to hold a formidable position in custom artificial intelligence accelerators as it benefits from hyperscale cloud vendors building chips to reduce their reliance on Nvidia,” noted Morningstar analyst William Kerwin. “We see Broadcom as the key secondary AI compute vendor to Nvidia as hyperscalers further pursue custom silicon to gain performance, save money, and avoid vendor lock-in.”
Kerwin added that large-scale acquisitions likely aren’t on Broadcom’s radar for the time being. That may be a sign that the company is being prudent with its cash flow and wants to focus its expenditures on AI while possibly firming shareholder rewards programs.
Additionally, VMware, acquired by Broadcom in 2023, provides a vibrant, non-AI revenue driver, particularly among deep-pocketed enterprise customers. That’s a plus, but AI will likely remain the catalyst for this stock and AVL.
“We expect Broadcom to grow rapidly as a result of its skyrocketing AI chip business. We believe AI is already the primary driver of Broadcom’s results. To us, an investment in Broadcom today is an investment in its AI chip and networking businesses. Outside of AI, we see more moderate growth led by VMware and non-AI networking,” concluded Kerwin.
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