Chipmaker Broadcom is breaking out. How Tony Zhang is trading it
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A developing story in semiconductors right now, one with the boldest AI narrative, but one with an unusual valuation disconnect. Broadcom is growing AI semiconductor revenue at triple-digit rates, converting nearly half of revenue into free cash flow, and guiding to one of the steepest near-term revenue accelerations in the sector, yet the stock trades at a major discount to the semiconductor group. And the charts are now starting to confirm the fundamentals on its recent breakout. Broadcom's most recent quarter reinforced that this is not just a momentum trade. The company reported record Q2 revenue, EBITDA, and free cash flow. AI semiconductor revenue grew 143% year over year and management guided Q3 revenue up 84%, with AI semiconductor revenue expected to grow more than 200% year over year. Broadcom has been firing on all cylinders, and the valuations do not yet fully reflect that. Trade Timing & Outlook AVGO recently broke above the $400 resistance level, shifting the technical structure from consolidation to breakout. Breakout Confirmation: The stock cleared $400 after a multi-week base, confirming renewed demand and triggering an OptionsPlay breakout signal. Support Reclaimed: The $400 area now becomes the key support zone for the trade, with the short put strike placed directly at that level. Upside Target: If the breakout continues, our upside target is $500, the prior highs from earlier this year. Fundamentals Broadcom's fundamentals are unusually strong relative to its valuation. Forward P/E: ~20.8x vs. Industry ~36.5x Expected EPS Growth: ~56.3% vs. Industry ~33.8% Expected Revenue Growth: ~55.3% vs. Industry ~18.9% Net Margins: ~38.9% vs. Industry ~16.5% Broadcom trades at a deep discount to the semiconductor group despite materially stronger expected revenue growth, stronger EPS growth, and more than double the industry's profitability. For a company with accelerating AI exposure and high free-cash-flow conversion, that discount looks increasingly compelling. Bullish Thesis AI Semiconductor Momentum Is Exploding: Broadcom's AI semiconductor revenue grew 143% year over year in Q2, and management expects that growth rate to exceed 200% in Q3. That acceleration confirms that custom AI accelerators and networking silicon are becoming a major growth engine rather than a side business. Custom Silicon Is a Structural AI Opportunity: Hyperscalers are increasingly using custom accelerators to reduce cost, improve power efficiency, and diversify away from general-purpose GPUs. Broadcom is one of the primary design and networking partners for that transition. VMware Adds High-Margin Stability: While AI semiconductors drive the growth story, VMware gives Broadcom a durable software cash-flow engine. That mix of high-growth AI hardware and recurring infrastructure software makes AVGO less cyclical than a pure semiconductor name. Options Trade To express a bullish income view with defined risk, I'm looking at Selling the Sept. 18, 2026 $400 / $380 Put Vertical @ $7.68 Credit. This entails: Selling the Sept. 18, 2026 $400 Put Buying the Sept. 18, 2026 $380 Put Maximum Reward: $768 per contract if AVGO is above $400 at expiration Maximum Risk: $1,232 per contract if AVGO is below $380 at expiration Breakeven: $392.32 This structure benefits if AVGO holds the recent $400 breakout level while allowing investors to collect premium with defined downside risk. View this Trade on OptionsPlay for Updated Pricing . Summary Broadcom is offering a rare combination: breakout technicals, explosive AI growth, and a valuation well below the semiconductor sector. The company is benefiting from two powerful engines, custom AI silicon and VMware software, while converting revenue into free cash flow at an accelerated rate. With the breakout above $400 and the fundamentals supporting a move toward $500, the put spread provides a defined-risk way to establish a position and seek further upside if the breakout holds and momentum continues. DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.