Broadcom (NASDAQ: AVGO) stock has moved sideways in the past month as the recent bullish momentum faded. This consolidation may be calm before the storm as it has formed a bullish flag pattern ahead of its quarterly earnings on June 3.
Broadcom stock has formed a giant bullish flag pattern
The daily chart shows that the AVGO stock price is preparing a massive surge in the coming days or weeks. The main reason for this view is that it started forming a giant bullish flag pattern on March 30th this year.
This pattern is made up of two key parts: a vertical line that resembles a flagpole and a horizontal or diagonal channel. In this case, the flagpole started at $290 and ended at $428, giving it a height of $138.
The stock has now moved to the flag section, where it has remained since April 22nd. In most cases, this pattern normally leads to a strong bullish breakout, with the target being estimated by adding the breakout point and the height.
A closer look also shows that the stock has been forming a cup-and-handle pattern. In this case, the upper side of the cup is at $415, while the lower side is at $290, giving it a height of $125. The current consolidation is part of the handle section.
Therefore, the combination of a bullish flag and cup-and-handle patterns point to more gains. The initial target will be the year-to-date high of $441. A break above that level will point to more gains, potentially to $500 after its earnings report.
AVGO stock chart | Source: TradingView
Broadcom has become a major beneficiary of the AI boom
The ongoing AI boom has made Broadcom one of its top beneficiaries, and this trend may continue in the foreseeable future. For example, the company entered a multi-year, multi-billion-dollar deal with OpenAI to develop custom chips. The two companies will also deploy ten megawatt of OpenAI-designed AI accelerators.
Its most recent earnings report showed that its business continued growing in the first quarter of the fiscal 2026. Its revenue jumped by 29% to $19.3 billion, while its GAAP net income rose to $7.3 billion and the non-GAAP figure rose to over $10 billion.
Digging deeper into its earnings report shows that its AI semiconductor solutions business made $8.4 billion, up by 106% YoY. This growth is mostly because of its custom AI accelerator solutions and networking.
Wall Street analysts are optimistic about Broadcom’s revenue and profitability growth. The average estimate is that its annual revenue will surge by 61% this year to $103 billion, followed by $158 billion next year.
Similarly, the earnings-per-share (EPS) is expected to jump from $6.8 last year to $18.26 next year. As a result, the company will continue boosting its shareholder returns. It returned $10.9 billion to shareholders in the first quarter by repurchasing shares worth over $7.8 billion.
Still, a major concern among investors is that Broadcom is one of the most crowded stocks in Wall Street. In some cases, highly crowded stocks tend to drop as investors start to book profits.
Most notably, there are concerns that it has become highly overvalued. It has a forward price-to-sales ratio of 47, much higher than the sector median of 32. This multiple is much higher than that of NVIDIA and Micron, companies that are having a faster growth rate. As such, its results will need to be stronger than expected to justify its valuation.
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