AVGO Stock Risks Breakdown to $250 If Support Breaks on VMware Contract Swap
Broadcom has started the year on the back foot as insider selling, VMware-related uncertainty, and stretched AI valuations prompt investors
Quick overview
- Broadcom's stock has declined approximately 6% as investor confidence in the AI semiconductor sector wanes due to insider selling and VMware contract uncertainties.
- Concerns over VMware's decision not to renew contracts with certain cloud partners have raised questions about revenue stability in Broadcom's software division.
- Despite strong earnings, Broadcom's stock has fallen over 20% from its all-time high, indicating a broader market reassessment of AI-related valuations.
- The company's valuation is under scrutiny as rising AI infrastructure costs and geopolitical risks challenge previous growth assumptions.
Broadcom has started the year on the back foot as insider selling, VMware-related uncertainty, and stretched AI valuations prompt investors to reassess near-term risk.
A Fragile Opening for an AI Heavyweight
Broadcom entered the new year under pressure, with shares sliding sharply as confidence across the AI semiconductor complex showed signs of strain. The stock fell roughly 6% in the latest session, extending a pullback that has gathered pace amid broader concerns about the sustainability of the AI hardware boom. Now AVGO stock threatens to break below the 100 daily SMA (red) which would open the door for $300 and below.
AVGO Chart Daily – MAs Have Turned Into Resistance
The decline reflects a convergence of factors rather than a single catalyst. Investor unease has been fueled by insider selling, questions surrounding VMware contract renewals, and a wider market reassessment of richly valued AI infrastructure names. Together, these pressures have pushed Broadcom from early-year optimism into a more defensive posture.
VMware Contract Changes Raise Software Division Questions
One of the more tangible concerns weighing on sentiment has been VMware’s decision not to renew contracts with certain cloud partners. Since Broadcom’s acquisition of VMware, investors have closely watched how the software business would be integrated and monetized under new ownership.
The contract decisions have raised questions about revenue stability and customer relationships within Broadcom’s software segment. While management has framed the strategy as a move toward higher-value, more disciplined engagements, the near-term optics have been less reassuring for markets already on edge.
At a time when hardware demand remains strong but cyclical risks are rising, uncertainty in the software division adds another variable to Broadcom’s investment case.
Insider Selling Triggers Early-Year Caution
The immediate spark for the latest leg lower came from a wave of insider selling that unsettled investors. Chief Executive Officer Hock Tan sold 70,000 shares at an average price of $347.30, generating proceeds of approximately $24.3 million.
Importantly, Tan still holds more than 908,000 shares, underscoring his continued long-term alignment with the company. Nevertheless, timing matters. The sale occurred shortly after Broadcom’s share price peaked and amid heightened volatility across AI-related stocks.
Additional sales by Chief Financial Officer Kirsten Spears and Chief Legal Officer Mark Brazeal—together totaling roughly $10 million—added to the perception that insiders were taking advantage of elevated valuations. While such transactions are often driven by routine financial planning, their clustering amplified investor caution.
Strong Earnings Fail to Arrest the Decline
The selloff is notable given that Broadcom had recently delivered a strong earnings report. The company beat expectations across revenue, adjusted earnings per share, and free cash flow, reinforcing its position as one of the most profitable operators in the semiconductor space.
Under different market conditions, those results might have stabilized the share price. Instead, the stock reversed lower, highlighting a shift in investor psychology. In the current environment, solid execution is no longer enough to support premium valuations without clear visibility into future returns.
Markets appear less willing to look through short-term risks, particularly when sentiment around AI spending is becoming more selective.
From Market Favourite to Swift Repricing
Broadcom’s pullback follows an extraordinary rally that carried the stock to an all-time high above $414. Enthusiasm around hyperscaler demand, AI networking, and long-duration infrastructure spending had driven valuations to historically elevated levels.
That optimism has cooled quickly. Shares have retreated toward the low-$300 area, representing a decline of more than 20% from the peak. The speed of the move suggests more than routine profit-taking—it points to a broader repricing of AI exposure across the semiconductor sector.
As investors reassess how much future growth is already priced in, even high-quality names like Broadcom are not immune.
Technical Breakdown Reinforces Defensive Tone
From a technical perspective, the chart has deteriorated. Broadcom has broken below several key daily moving averages that previously acted as support, with those levels now turning into resistance.
AVGO Chart Monthly – Heading for the 20 SMA
Attention is increasingly focused on longer-term support zones near the $300 level. A decisive break below that area would open the door to deeper retracement toward the $250 region, which aligns with prior resistance from late 2024 and key longer-term moving averages such as the 20 SMA (gray).
Momentum indicators suggest selling pressure has not yet fully exhausted itself, reinforcing the cautious near-term outlook.
Margins Come Under Closer Scrutiny
Fundamentally, Broadcom’s business remains robust. Revenue rose more than 28% year over year to $18.02 billion, and free cash flow generation continues to be a core strength.
However, management guided to a modest decline in gross margin in the coming quarter, largely due to a higher mix of AI-related revenue. While AI is driving growth, it appears to be slightly less profitable than some legacy businesses in the near term.
In a market increasingly focused on capital efficiency and return on investment, even incremental margin pressure can weigh disproportionately on sentiment.
Valuation Returns to the Center of the Debate
At its peak, Broadcom’s valuation embedded assumptions of sustained hyperscaler spending, stable margins, and limited competitive disruption. As AI infrastructure costs rise and geopolitical risks re-emerge, those assumptions are being tested.
The recent selloff does not signal a fundamental breakdown in Broadcom’s business model. Rather, it reflects a recalibration of expectations as investors grow more selective about AI exposure.
For now, Broadcom remains a leader in critical infrastructure—but the market is signaling that leadership alone is no longer enough to justify an unchecked premium.
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