Broadcom:
Expecting strong earnings, but macro friction is building

Broadcom report after the market close on Thursday. The chipmaker has had a strong run of late & is close to all-time highs.

That run has been driven by specific returns - Nvidia earnings & optimism around the AI trade. The purple sections in the chart below show how idio has dominated. 

Note how macro factors provided a small tailwind toperformance in Q1 before April's tariff shock acted as a major drag. Despite the market's sharp recovery, that pattern has continued into May - AVGO's specific returns have been strong but macro remains a headwind

 

While earnings are expected to be positive on Thursday, the macro story is important. Indeed, AVGO's returns are seeing macro's influence rise. The 3mth rolling correlation of Broadcom's actual returns with specific & macro factors, shows the latter is now the more significant.

It's the same picture from a risk perspective. April saw a big jump in risk driven by macro factors. 

For a long period, macro's share of risk was small. That's changed in the last month & macro now accounts for half of AVGO's risk profile. 

The 'good news' from a macro perspective is the current exposure profile. Broadcom is comfortable with rising real rates, steeper yield curves, higher rate vol & a weaker Dollar.

 

But the biggest exposure by far shows the stock is reliant on credit spreads remaining well behaved.

Author
Qi Analytics Team

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