Hedge Funds Flip Broadcom to Top Long Position After Earnings

Hedge funds shifted Broadcom (AVGO) from a predominantly short position in August to one of their most popular long holdings in September, according to monthly crowding data from Market intelligence firm Data Insights. The reversal followed the company's third-quarter earnings report on Sept. 2, which showed significant revenue growth despite mixed analyst reactions to forward guidance.

Data Insights tracks institutional positioning and identifies the most crowded trades among hedge funds and other large investors. September saw the S&P 500 decline, partly due to Federal Reserve interest rate hikes, yet managers increased exposure to large technology stocks. Amazon (AMZN) remained the most held stock in the group, followed by Microsoft (MSFT) and Applied Materials (AMAT). Broadcom joined Nvidia (NVDA) and Meta Platforms (META) in the top ten most-held names.

The sentiment shift for Broadcom coincided with strong financial results. The AI chipmaker reported third-quarter revenue of $29.6 billion, an 86% year-over-year increase that exceeded estimates. Net income rose 216% to $13.1 billion, or $2.68 per share. AI semiconductor revenue specifically surged 221% year over year and 54% quarter over quarter to reach $16.7 billion, also beating expectations.

Despite these results, some analysts expressed concern that forward guidance was insufficient. Broadcom projects fourth-quarter revenue of $34.8 billion, a 93% year-over-year increase, which fell slightly short of the $35.03 billion analysts expected. However, the company expects AI semiconductor revenue to accelerate to $21.7 billion in the fourth quarter, up 236% year over year.

Broadcom raised its fiscal 2026 AI semiconductor revenue guidance to $58 billion from a previous target of $56 billion, up from $20 billion in the prior year. The company is targeting $115 billion in AI semiconductor revenue for 2027, a 98% increase, and expects to double that figure to $230 billion in 2028.

Investors have also noted a decline in Broadcom's gross margin, though it remains at an attractive 73%. The drop reflects the growing mix of its lower-margin AI semiconductor business, a trend expected to stabilize as the segment matures.

Valuation concerns had previously weighed on the stock after a three-year run that produced an average annualized return of 59%. Broadcom posted triple-digit returns in both 2023 and 2024, pushing its price-to-earnings ratio above 100 more than a year ago. Hedge funds appear to have viewed the post-earnings price dip as an entry point, noting that the current P/E ratio has fallen to 46. The forward P/E ratio stands at 19, while the five-year P/E-to-growth ratio is 0.36.