Broadcom (NASDAQ:AVGO) delivered an impressive 9% stock price gain following an upbeat quarterly performance reported on March 6. The company’s performance was fueled by continued demand for its AI products. With the stock soaring 50% year-over-year and maintaining robust revenue growth averaging 24% over three years, Broadcom surely presents a compelling narrative.
But, here’s the thing, in a downturn, AVGO can lose – no – there is evidence, from as recent as in 2022, that AVGO stock lost as much as 36% of its value over a span of just a few quarters. Now, of course, individual stocks are more volatile than a portfolio – and in this environment if you seek upside with less volatility than a single stock, consider the High-Quality portfolio, which has outperformed the S&P 500 and achieved returns greater than 91% since inception. Separately, see How ADBE Stock Might React To Upcoming Earnings?
Why This Matters Now
While Broadcom’s AI prospects remain promising, substantial macroeconomic headwinds warrant attention. Though inflation concerns have diminished, they haven’t disappeared. The current administration’s aggressive tariff and immigration policies have rekindled inflation anxieties, potentially signaling economic turbulence ahead.
Risk Factors to Consider
The heightened geopolitical uncertainty stemming from the new administration’s bold policy initiatives presents additional challenges. With ongoing conflicts in Ukraine-Russia, trade uncertainties, and strained negotiations with long-standing allies including Canada, Mexico, and Europe, the risk landscape has grown increasingly complex.
Concerning Performance Metrics
Notably, AVGO stock has underperformed the benchmark S&P 500 index during the recent market downturns—a critical consideration for investors evaluating their risk tolerance in today’s volatile environment.
While investors have their fingers crossed for a soft landing by the U.S. economy, how bad can things get if there is another recession? Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last six market crashes.
Inflation Shock (2022)
• AVGO stock fell 36.3% from a high of $67.09 on 4 January 2022 to $42.71 on 16 October 2022, vs. a peak-to-trough decline of 25.4% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 18 May 2023
• Since then, the stock has increased to a high of $250.00 on 16 December 2024 and currently trades at around $195
Covid Pandemic (2020)
• AVGO stock fell 46.8% from a high of $31.57 on 19 February 2020 to $16.79 on 18 March 2020, vs. a peak-to-trough decline of 33.9% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 5 June 2020
In conclusion, while AVGO stock currently enjoys investor enthusiasm driven by significant AI sector expansion, it commands a premium valuation at 30x forward earnings. Consider that despite Broadcom’s impressive 44% revenue surge last year, projections indicate a decelerating growth trajectory—21% this year followed by 15% next year. So ask yourself the question: if you want to hold on to your AVGO stock, will you panic and sell if it starts dropping to $150, $100, or even lower levels?
Holding on a falling stock is not always easy. Trefis works with Empirical Asset – a Boston area wealth manager, whose asset allocation strategies yielded positive returns during 2008/2009 timeframe, when S&P lost more than 40%.
Empirical has incorporated the Trefis HQ Portfolio in this asset allocation framework to provide clients better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
While investors have their fingers crossed for a soft landing by the U.S. economy, how bad can things get if there is another recession? See the last six market crashes compared.
Invest with Trefis
Market Beating Portfolios | Rules-Based Wealth
Read the full article here
