Broadcom reports earnings this week. Mike Khouw says this trade could be a winner

Broadcom (AVGO) is set to report Q3 earnings after a prior Q2 miss that drove shares down nearly 13% the next day and ~23% over the following month. Options are pricing an ~8% implied move into the event amid elevated volatility and mixed technical signals (consolidating below the 150-day moving average while CCI turns positive). The article highlights a moderately bullish options structure—selling a Sept. 25 $335 put and a Sept. 25 $430 call while buying a Sept. 25 $435 call—to target net credit of at least ~1.8% (nearly $7) in under four weeks, with renewed downside risk if forward AI revenue guidance disappoints again.

Analysis

AVGO is less a one-name event than a litmus test for whether hyperscaler AI spend is still rewarding the biggest incumbent or getting fragmented across custom-design alternatives. If management fails to strengthen the long-dated AI runway, the first-order damage is to AVGO’s multiple; the second-order effect is a read-through to MRVL and any merchant-silicon name priced off share gains from customer diversification. GOOGL is the quiet beneficiary in that regime: more internalization and multi-sourcing improves its bargaining leverage versus external silicon vendors, even if near-term capex stays elevated.

The critical distinction is guide quality versus headline print. An 8% implied move is large, but after the prior reset the stock can still bounce if management merely avoids a haircut to outer-year AI assumptions; the real downside is a 1-3 month estimate cut cycle that compresses the forward multiple even if the quarter itself looks clean. If the company does not quantify better conversion from pipeline to revenue, the market will likely treat any rally as temporary and use strength to de-risk semis broadly.

Consensus may be over-fixated on whether the quarter beats by a little, when the actual binary is whether the AI revenue path is becoming more durable or more contested. The contrarian view is that the stock may already be pricing in a disappointment severe enough that a merely adequate guide produces relief, making short-vol structures more attractive than outright directional shorts. The thesis is falsified if management raises the long-dated AI target or if forward commentary shows acceleration without margin leakage; that would likely re-rate AVGO and pressure MRVL immediately.

Key Decisions for Investors

• AVGO: avoid naked pre-earnings directionality; if you want exposure, use defined-risk premium sale only, sized small, because the real risk is a guidance reset rather than the reported quarter.
• Post-earnings, if AVGO sells off but holds key support and management did not cut AI assumptions, buy a 1-3 month call spread for a rebound trade; risk/reward improves materially after IV crush.
• Relative value: long GOOGL / short AVGO over 1-3 months if the print confirms AI spend is fragmenting across more vendors; target spread compression, stop if AVGO raises its AI outlook.
• Watch MRVL as the secondary beneficiary on any AVGO guidance miss; if AVGO disappoints on long-dated AI, MRVL can outperform on diversification hopes, but only if GOOGL/hyperscaler commentary supports multi-sourcing.
• If AVGO gaps up on a strong guide, fade the move with a tight call-spread short into the next 2-4 weeks; the setup benefits from elevated implied vol and likely post-event mean reversion.