Broadcom Sees Biggest Short Volume Amid $300 Billion Market Cap Wipeout
$Broadcom(AVGO)$
The three-day stock selloff is on pace to wipe out more than $300 billion from the company’s market capital, shaving some of its 54% record-breaking rally over the past year that turned Broadcom into a $2.28 trillion company. If losses hold through the end of the trading day, the market could drop to $1.89 trillion. Short sellers piled onto the stock just as market makers are selling into weakness to manage their risk in the options market.
Short volume jumped to 7.15 million shares Thursday, from 5.1 million shares a day earlier. The latest figure, its highest since Dec. 19, represented 8.8% of the shares that changed hands that day, when the stock tumbled almost 13%, according to exchange data tracked by moomoo. Short volume reflects traders borrowing shares to sell them in anticipation of further price drops.
After the market closed on Tuesday, Broadcom forecast fiscal third quarter AI semiconductor revenue could climb to $16 billion. While that represents a growth of more than 200%, it's still below the $17.2 billion that analysts were expecting, according to estimates compiled by Bloomberg. That overshadowed a beat on total revenue outlook for that quarter and the better-than-expected revenue and earnings for the three months ended May 4.
The selloff pushed the stock price below the so-called Gamma Flip level. When that happens, market makers are forced to sell the underlying stock to remain hedged, creating a feedback loop that exacerbates downward momentum.
With the stock trading at $401.30, it sits near the 400 strike price, a level where heavy put options activity, known as a Put Wall, currently resides. A Put Wall is a price level with a massive concentration of put options, which are contracts that gain value when a stock falls.
Sentiment was further dampened by a downgrade from Macquarie, which shifted its rating for Broadcom from "Outperform" to "Neutral". This downgrade stems from strategic concerns regarding Google’s internal chip development, which may eventually reduce Broadcom’s market share as a supplier of application-specific integrated circuits, or ASICs. An ASIC is a custom-designed microchip built for a specific application rather than general-purpose use, making it highly efficient but also creating a concentrated revenue reliance on key hyperscale customers.
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