Options Sir Breaks Down the Hot Topics | Strong Earnings Fail to Meet Soaring AI Expectations, Broadcom Drags Down AI-Related Stocks Post-Earnings

After market close on June 3, $Broadcom (AVGO.US)$ released its earnings report. Overall, Broadcom reported revenue of $22.187 billion, exceeding the market consensus estimate of $22.129 billion; adjusted EPS came in at $2.44 per share, beating the market forecast of $2.39 per share—a strong set of results.However, Broadcom's overall beat clearly failed to satisfy the market, with its stock plunging more than 13% after hours on June 3 and continuing to decline on June 4, dragging down recently rallied AI supply chain stocks in segments such as memory $Micron Technology (MU.US)$ 、 $SanDisk (SNDK.US)$ 、 $Western Digital (WDC.US)$ and optical communications $Lumentum (LITE.US)$ 、 $Coherent (COHR.US)$ 、 $Marvell Technology (MRVL.US)$ and other related names.

Behind the sell-off: the market demanded an even more 'explosive' AI performance

From April to date, AI supply chain stocks have delivered countless surprises, with mainstream AI hardware names all rallying. This also fueled expectations that AI-driven demand would boost cybersecurity software demand, lifting $Snowflake (SNOW.US)$ 、 $Datadog (DDOG.US)$ and other software stocks along with them.

Although Broadcom’s latest results were impressive,its AI revenue surged 143%, yet it did not significantly exceed Wall Street analysts' expectations during the recent AI rally. Additionally, Broadcom guided for $16 billion in AI semiconductor revenue for the next fiscal quarter (Q3), which represents more than a threefold year-over-year increase but still falls short of analyst expectations.According to Citi analyst Atif Malik, the $16 billion AI revenue guidance is below his own expectation of $17.5 billion and also below the market consensus estimate of $16.3 billion.

Moreover, management’s guidance has heightened market concerns about a cooling AI boom. Broadcom CEO Hock Tan refrained from raising his AI revenue outlook for fiscal year 2027 and acknowledged that Broadcom’s most important customer, Google,is advancing supplier diversification." This prompted a wave of profit-taking among investors who had positioned for further AI-driven gains, driving the stock price sharply lower across the board.

Back to the earnings report: Has the fundamental picture truly "weakened"?

Let’s return to the earnings data. As previously noted, all of Broadcom’s business segments posted record growth, and its guidance for the next quarter also reached new highs.While this earnings guidance may not have met the market’s appetite for rapid near-term gains, the long-term upward trajectory remains intact.Hock Tan revealed this time that Broadcom’s visibility into AI demand has extended from "through 2027," as stated three months ago, to "through 2028."; Bookings in the second fiscal quarter exceeded $30 billion. AI revenue is expected to double in both the first and second halves of fiscal year 2026, reaching approximately $56 billion for the full year, and will 'significantly exceed' the $100 billion target as it enters fiscal year 2027.Broadcom's growth momentum may not become fully evident until after fiscal year 2027.

Wall Street analysts are not entirely pessimistic either.Deutsche Bank raised its price target from $430 to $515 (an increase of approximately 20%), implying about 23x non-GAAP earnings per share for calendar year 2027, and maintained a Buy rating. Its analysts explicitly stated that the long-term investment thesis remains unchanged and that the recent pullback presents a rare buying opportunity. Citi kept its $500 price target (implying roughly 20x fiscal year 2028 EPS) and Buy rating, though its analysts noted that Citi estimates Broadcom derives roughly 35% to 40% of its revenue from Google, its largest customer, highlighting ongoing concerns about customer concentration risk.

Options Market: Chasing Trends, but Also Hedging

Since last week, Broadcom’s stock price has at one point risen more than 18%. Ahead of its June 3 earnings report, there was heavy call option activity, with put/call optionstrading volume ratiobriefly falling to 0.54, but climbing to 0.78 after the sharp decline—indicating some capital shifted from chasing upward momentum to hedging against potential downside. Implied volatility dropped from 65.75% before earnings to 52.73%, reflecting the typical post-earnings 'IV crush' phenomenon.

However, looking at open interest,the total put/call open interest ratio remains elevated at 1.07., and we can also note that there is a significant amount of Put positions concentrated between the 400–450 strike levels,Mainstream market capital has already deployed Puts to hedge against potential losses from a sharp downturn.

Given this context, taking Broadcom as an example, if you are bullish on AI-related stocks over the long term but wish to navigate short-term volatility smoothly, you could consider the following approaches:

1. You don’t currently hold the stock but are bullish long-term and want to buy at a lower price.

In this case, you cansell out-of-the-money Put options below the current price. If the stock price falls below the strike price, the Put will be exercised, allowing you to acquire the shares at the lower strike price using your margin. Additionally, by continuously selling options, you can collect premium income.

However, option sellers must ensure they maintain sufficient margin; otherwise, forced liquidation of your account could result in unnecessary losses.

(The design images shown on screen are for illustrative purposes only and do not constitute any investment advice or guarantee; market conditions change rapidly, and displayed prices may not reflect actual market values.)

2. You already hold the position but are reluctant to sell further after a price decline.

then you canbuy a short-term put optionto hedge your existing position. If the stock price drops due to short-term sentiment, this put option can partially offset the losses from the decline.

3. You don’t hold a position but want to establish a small observation position

pieces ofA spread strategymight be appropriate. If you are bullish on the underlying stock, you can buy a call option at a lower strike price and sell another call option at a higher strike price, formingBull Call Spread.. Compared to directly buying the underlying stock, this approach has a lower initial cost while still allowing you to capture some of the upside potential.

Conversely, if you are bearish, you can take the opposite side of this strategy—buy a call option at a higher strike price and sell one at a lower strike price, formingBear Call Spread, which profits when the stock price declines.

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Options Risk Disclosure:An option is a contract that grants the holder the right—but not the obligation—to buy or sell an underlying asset at a predetermined price on or before a specified date. Option prices are influenced by multiple factors, including the current price of the underlying asset, the strike price, time to expiration, and implied volatility. Implied volatility reflects the market’s expectation of future price fluctuations over the life of the option; it is derived by reverse-engineering the Black-Scholes pricing model and is commonly viewed as an indicator of market sentiment. When investors anticipate higher volatility, they may be willing to pay more for options to hedge their risk, resulting in higher implied volatility. Traders and investors use implied volatility to assess the attractiveness of option prices, identify potential mispricings, and manage their risk exposure.

Disclaimer:This content does not constitute an offer, solicitation, recommendation, opinion, or any form of guarantee regarding any securities, financial products, or instruments. The risk of loss in trading options can be substantial. In certain circumstances, your losses may exceed the initial margin deposit. Even if you place contingent orders such as 'stop-loss' or 'limit' orders, there is no assurance that losses will be avoided, as market conditions may prevent execution of these orders. You may be required to deposit additional margin on short notice. If you fail to meet such margin calls within the stipulated time, your open positions may be liquidated. You remain fully liable for any resulting deficit in your account. Therefore, prior to trading options, you should thoroughly research and understand how options work and carefully consider whether such trading aligns with your financial situation and investment objectives. If you trade options, you should become familiar with the procedures for exercising options and handling expiration, as well as your rights and obligations upon exercise or expiration. Options trading involves significant risk and is not suitable for all investors. Investors should carefully read"Characteristics and Risks of Standardized Options"。

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