This Stock Is Vying to Join the Magnificent Seven By Larry Benedict, editor, Trading With Larry Benedict Investors follow the “Magnificent Seven” for good reason. These stocks benefited enormously from the artificial intelligence (AI) boom. And combined, the value of Apple (AAPL), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN), Meta Platforms (META), and Tesla (TSLA) recently reached $17.7 trillion. That means they dominate the major indexes. Over the past year or so, though, chipmaker Broadcom (AVGO) has been striving to join the illustrious group. In December, its value burst past a trillion dollars. At $1.11 trillion, Broadcom is now larger than Berkshire Hathaway (BRK-B). And it’s not far short of Tesla’s $1.37 trillion valuation. But after hitting fresh highs, AVGO has been moving in a tight range over the past month. Some of the euphoria for tech stocks after Donald Trump’s win has abated. So let’s check in on AVGO today to see how it’s likely to perform from here… AI Revenue Surge The chart of AVGO below shows its uptrend for most of last year. The 50-day Moving Average (MA, blue line) tracked higher – with the shorter-term 10-day MA trading above it much of the time. But in December last year, the stock price surged: Broadcom (AVGO)
Source: eSignal
(Click here to expand image) The cause of that gap higher was AVGO’s earnings. Q4 revenue hit $14.05 billion – up 51% year over year (YoY). Operating profit rose 53% YoY to $8.8 billion for the quarter. Yet the big story was AVGO’s AI-based revenue… AI revenue for the 2024 fiscal year reached $12.2 billion. That was us up 220% from the previous year. Better still, the company is forecasting massive growth over the next three years as demand for its AI chips and infrastructure software develops further. But the stock’s jump also put the Relative Strength Index (RSI) into overbought territory (upper gray dashed line). As the RSI reversed (orange circle), AVGO topped out and fell. It retreated as momentum tracked lower. So with AVGO’s rally hanging in the balance, what should we look for next? Free Trading Resources Have you checked out Larry’s free trading resources on his website? It contains a full trading glossary to help kickstart your trading career – at zero cost to you. Just click here to check it out. |
Watch Momentum For AVGO’s rally to remain intact, it needs to gain traction above short-term resistance (brown line). Take another look:
Source: eSignal
(Click here to expand image) The first test for a new leg higher is to take out its December 16 high ($251.88). That could be challenging after such a strong move. But action around the RSI will be key… The RSI remaining in its upper band (above the green line) will show buying momentum remains positive. If the RSI makes a lower high than its peak, it will show that buyers’ enthusiasm is limited… and we could see a pullback in the stock price. But even if we get a temporary pullback, AVGO will be a stock to watch this year. With its growth potential and an outwardly pro-tech president in the White House, AVGO may see lots of tradeable action in the months ahead. Regards, Larry Benedict
Editor, Trading With Larry Benedict | 