Broadcom (AVGO) is slated to post quarterly results after the bell on Thursday, and at least one analyst sees an attractive way to bet on a post-earnings stock surge.
Broadcom shares are expected to move nearly 6% in either direction between Thursday’s open and Friday’s close, according to options pricing data. A move of that size would put shares at either an all-time high of $320 or, on the downside, about $285, which would be its lowest close since late July.
Still, 6% is a modest change for Broadcom stock. Shares moved an average of 7.4% after earnings over the past three years, and 12.1% in the past four quarters. The relatively muted move implied by options pricing is one reason JPMorgan strategist Bram Kaplan on Thursday endorsed using derivatives to stake a bullish bet on Broadcom’s earnings.
“Call skew on AVGO appears flat,” wrote Kaplan on Thursday, “leading us to favor upside call spreads on AVGO into earnings.” An upside call spread entails simultaneously buying call options at one strike price and selling the same number at a higher strike price. Kaplan recommended buying for $1.80 a $320-$330 call spread on contracts expiring Friday.
Broadcom is JPMorgan analysts’ top semiconductor pick, “given its exposure to AI infrastructure spending trends combined with its diversified end market exposure and best-in-class gross, operating, and free cash flow margins,” according to Kaplan.
The firm predicts a beat-and-raise quarter from Broadcom, with AI revenue expected to surpass the Wall Street consensus of $5.1 billion and fall somewhere between $5.2 billion and $5.4 billion. They also expect guidance to easily exceed expectations.
JPMorgan’s not alone in liking the stock. All 14 of the analysts tracked by Visible Alpha with current assessments of Broadcom stock rate it a “Buy.” Their average price target of $320.55 represents 6% upside from Wednesday’s close.
Broadcom’s report comes a week after AI chip leader Nvidia’s (NVDA) slightly better-than-expected results showed that demand for artificial intelligence infrastructure, like Broadcom’s chips and networking equipment, remains robust. As with Nvidia, investors will be eager to hear how Broadcom is navigating tensions between the U.S. and China, since the Asian country accounted for about a fifth of Broadcom’s revenue last year.
Broadcom shares were up 0.8% in recent trading and have gained about 31% since the start of the year.