Broadcom (AVGO) is positioned for significant gains, trading approximately 50% below analyst price targets despite robust AI infrastructure growth driving its semiconductor revenue. With upcoming earnings as a potential catalyst, a defined-risk options strategy involving selling a 9/18/2026 $320 put and buying a 9/18/2026 $400 call is proposed to capitalize on potential upside while mitigating risk.
Broadcom (AVGO) currently trades at a significant discount, roughly 50% below its average Wall Street price target, despite the accelerating build-out of artificial intelligence (AI) infrastructure. Priced around $370, the stock remains well beneath analysts' consensus targets, which hover in the low-to-mid $500s, reflecting a "strong buy" rating across the Street.
This valuation gap represents one of the clearer dislocations in the semiconductor sector today. The market often perceives AVGO primarily as a networking company, overlooking its powerful dual-engine role within the broader semiconductor arena, a crucial aspect of its AI growth story.
Broadcom's AI semiconductor revenue is experiencing explosive growth. The most recent quarter saw a staggering $10.8 billion in AI chip sales, marking a 143% year-over-year increase. Management has guided for $16 billion in the current quarter and reaffirmed an impressive $56 billion for the full fiscal year, with a clear path to exceeding $100 billion in AI semiconductor revenue by fiscal year 2027.
A closer look at this AI revenue reveals its diverse sources: approximately 40% stems from networking solutions like Tomahawk switches and related silicon. The remaining portion comes from custom XPUs/TPUs designed for major hyperscalers and frontier labs, including tech giants such as Google, OpenAI, and Anthropic.
Crucially, Broadcom isn't dependent on winning the GPU design race. Its business model allows it to profit regardless of whether customers opt for merchant GPUs or develop their own custom accelerators. AVGO then "double dips" by providing the high-speed Ethernet fabric essential for connecting these massive AI infrastructures at scale.
The upcoming September 2 earnings report for this nearly $2 trillion company stands as a key near-term catalyst for investors looking to capitalize on a potential rebound. Market participants will be keenly focused on management's guidance regarding AI semiconductor trajectory and any new commentary on custom-ASIC developments, potentially more so than the reported numbers themselves.
Given that the stock already factors in considerable skepticism around multisourcing and competition, the risk/reward profile for a defined-risk bullish options strategy appears highly attractive relative to the substantial upside implied by analyst targets. Elevated implied volatility following the recent pullback also presents an opportunity to sell expensive downside premium through puts and use that capital to offset the cost of an upside call option.
The recommended trade:
- Sold the 9/18/2026 $320 put for $6.25
- Bought the 9/18/2026 $400 call for $9.50
This debit spread costs an investor $3.25, or $325 per one lot, when AVGO was trading around $367. This strategy expresses a bullish view while defining and mitigating potential downside. The short put implies a willingness to own AVGO at $320 (approximately 12% below current levels), which would represent an even deeper discount to the average Street target. The long $400 call offers leveraged participation if the stock re-rates towards the $500+ zone modeled by analysts, driven by the robust AI revenue ramp. The September regular expiration provides ample time for the September 2 earnings reaction to play out without forcing an immediate binary decision. Importantly, the short put significantly reduces the net capital outlay compared to a pure long call, and unlike a simple debit spread, the upside remains uncapped above $403.25 (strike plus cost of spread).
