Something shifted in the chip market this week. Not gradually. Abruptly.
On July 6, Broadcom (AVGO) disclosed in a securities filing that it had extended its custom silicon partnership with Apple through 2031 — a deal Apple said on July 8 is expected to exceed $30 billion and will result in over 15 billion U.S.-made chips. The stock jumped roughly 6% on the news. Then another 3.7% the following session. That’s two consecutive days of meaningful recovery from a stock that had been getting quietly destroyed.
Here’s where it actually stands: AVGO has fallen approximately 25% from its recent high of about $495, reached on June 3. That peak came the same day Broadcom reported fiscal Q2 results — and then the stock sold off hard anyway.
The Q2 numbers were genuinely strong. Total revenue climbed 48% year-over-year to a record $22.187 billion. AI semiconductor revenue surged 143% year-over-year to $10.8 billion, representing nearly 49% of total company revenue. Non-GAAP EPS of $2.44 came in above the $2.40 estimate, up 54% from the prior year. Adjusted EBITDA hit about $15.2 billion — a 52% increase — at a 69% margin. Free cash flow jumped 60% to $10.26 billion.
So why did the stock fall roughly 11%–12% after reporting those numbers?
The part people skip: CEO Hock Tan didn’t raise the full-year AI semiconductor forecast. He reiterated the company’s longer-term view of AI semiconductor revenue exceeding $100 billion by fiscal 2027, and guided to Q3 AI semiconductor revenue of $16.0 billion — implying over 200% year-over-year growth. But some analysts had been pricing in upward guidance revisions that never came. So the market punished a record quarter because the record wasn’t quite record enough.
What’s interesting is what happened in the six weeks since that selloff. Broadcom kept building its customer roster. The company has discussed having six key custom AI customers; public reporting has linked that group to names including Google, Meta, Anthropic, and OpenAI (though Broadcom does not routinely disclose customer names). Then came the “Jalapeño” announcement: a custom AI inference chip announced by OpenAI and Broadcom, described as a fast nine-month development cycle. Specific performance claims and commercial terms (like “50% cost savings,” “production workloads at scale,” and “multi-gigawatt commitments out to 2029”) have not been consistently substantiated in primary, on-the-record disclosures, so they should be treated as unconfirmed.
Then Monday’s Apple extension. The announcement addresses what had been the single most persistent overhang on AVGO shares: the fear that Apple would gradually replace Broadcom’s connectivity chips with in-house silicon. The deal reinforces Broadcom’s role as a long-term custom-chip partner to Apple through 2031.
Slight tangent, but it matters: the Apple deal didn’t just move AVGO. It moved the whole chip sector. AMD gained roughly 10% that session. Intel rose about 5%. The iShares Semiconductor ETF (SOXX) ripped higher. What looked like a Broadcom-specific catalyst became a sector-wide repricing of AI hardware conviction.
The Options Picture
Current AVGO options activity is heavily skewed bullish. The put-to-call ratio on contracts expiring mid-September sits near 0.55x, which is a meaningful signal — more calls are being bought than puts at roughly a 2-to-1 ratio. Call volume recently hit 284,880 contracts versus 112,295 puts in a single session, with a put-to-call ratio of approximately 0.39. That’s not neutral positioning. That’s directional conviction.
Analyst consensus as of July 8 sits at “Strong Buy” with a mean price target near $501-$517 — implying upside of more than 35% from current levels. For fiscal year 2026, analysts project adjusted EPS of $10.27, rising to $14.29 in fiscal year 2027. Some models see earnings potential above $19 per share by calendar year 2028 if AI infrastructure momentum continues.
The company also authorized a $10 billion share repurchase. And it has a long streak of dividend growth (commonly cited as about 15 consecutive years). The EBITDA margin running near 69% tells you the business is not losing operating leverage as it scales.
Three Scenarios Worth Modeling
Bull case: For traders who believe the Apple deal de-risks the customer concentration story and AI semiconductor revenue continues scaling toward the $16 billion Q3 target, a defined-risk structure like a bull call spread — buying the August $380 call while selling the $430 call — provides leveraged upside exposure while capping premium at risk. The options market suggests a mid-teens percentage move in the next two months is a reasonable expectation for the bull scenario.
Bear case: If AI spending slows or margin compression disappoints investors again, AVGO has another support zone around the $320-$330 range from earlier in its run. A defined-risk put spread — buying the August $360 put, selling the $330 put — would monetize that thesis while capping the loss to the premium paid.
Neutral/income case: Given the stock’s recent volatility, implied volatility remains elevated relative to historical norms. A covered call against existing shares — selling the August $420 call — allows shareholders to collect premium while holding a position through what remains a binary path to the next catalyst.
The Risk That Matters
Broadcom’s story has always had a concentration problem. A meaningful share of AI revenue comes from a small number of hyperscaler relationships. Google alone is developing its own TPU silicon. Meta and Microsoft are both deepening in-house chip programs. Any signal that one of the core customers is pulling back — even slightly — would reprice AVGO aggressively lower. The valuation is elevated (around ~60–62x trailing P/E in early July) and leaves very little room for execution missteps.
The AI capex cycle is accelerating and we’re focused on opportunities where bottlenecks are appearing in chips and data centers. Broadcom sits squarely in that path. Whether it stays there at this valuation is the only debate left worth having.
Analyst price targets suggest 35% upside. The options market sees continued momentum. The Apple deal removes the biggest known overhang. None of that means the stock goes straight up from here.
Watch $395 on the upside. Watch $340 on the downside. The range in between is where this story resolves.
