Quality chip stocks got left behind the AI boom — buy the beaten-down names like Broadcom and MACOM

Verdict: elite fundamentals, unconfirmed entry — wait for the EMA reclaim

The re-rating thesis is fundamentally credible over a 3–6 month horizon: Broadcom's latest quarter (ended August 2, 2026) showed revenue of $29.6B, up 33.4% sequentially, net income of $13.1B, up 40.6%, and free cash flow of $13.7B in the 99th percentile of IT peers, while MACOM's net margin jumped 13.4 points to 29.4%. But the trade is not live: AVGO closed at $342.75, about 3.7% below its 50-day EMA of $355.52, and MTSI sits about 10% below its $281.89 EMA, so the strategy's own entry rule has not confirmed the recovery. The strongest argument for the idea is elite, accelerating cash generation that typically forces a discounted quality stock back toward fair value. The strongest argument against is that provisional 13F-period filings for the period ending September 30, 2026 show net open-market insider selling of roughly $513.6M at Broadcom and $29.0M at MACOM — the people closest to the numbers are sellers, not buyers — and MACOM's free cash flow fell 9.6% while its earnings doubled. On top of that, the proposed entry rules could not be validated at all because Broadcom's raw and adjusted price series use different bases, so no historical win rate or drawdown exists for this specific setup. Wait for AVGO to close above its 50-day EMA and watch the next earnings reports for margin or free cash flow deterioration.

Trade now

Wait — do not act yet. The re-rating thesis on Broadcom (AVGO) and MACOM (MTSI) is plausible on the fundamentals: AVGO's latest quarter (ended August 2, 2026) showed revenue of $29.6B, up 33.4% quarter over quarter, with net income of $13.1B and free cash flow of $13.7B, and MTSI grew revenue 18.4% to $342.2M with net income more than doubling. But the strategy's entry conditions are not met. The pivotal condition: each stock must close above its 50-day EMA and its 14-day RSI must cross back above 40. Right now neither price condition holds. AVGO sits at $342.75, about $12.77 (3.7%) below its 50-day EMA of $355.52, with RSI at 54 — above 40, so momentum is not the binding constraint, price is. MTSI is at $256.33, $25.56 (10%) below its 50-day EMA of $281.89, with RSI at 43.2, also already above 40. In both cases the price-above-EMA condition is the one that would flip the setup from 'waiting' to 'live.' Horizon: this is a swing-to-position trade on a 1-day chart with defined exits at roughly +2% to 4%, so think days-to-weeks, not a buy-and-hold re-rating thesis. Downside that matters: the trailing 12-month maximum drawdowns — 41.5% for AVGO and 44.2% for MTSI — are a reminder that these names can fall hard even when the fundamentals are improving. Note that a 'wait' here does not mean the thesis is wrong; it means the entry rule has not yet confirmed that the catch-up move has started, and no backtest evidence is available to justify entering early on faith alone. ### Technical details The strategy requires all four of these conditions to fire a long entry (observed as of the October 27, 2026 close): | Condition | AVGO (last close $342.75) | MTSI (last close $256.33) | |---|---|---| | Price above 50-day EMA | Not met — price is $12.77 below the EMA of $355.52 | Not met — price is $25.56 below the EMA of $281.89 | | Price crosses above 50-day EMA | Not met | Not met | | RSI (14) crosses above 40 | Already satisfied (RSI 54.0) | Already satisfied (RSI 43.2) | | ADX (14) below 30 | Met (23.6) | Met (21.8) | The 50-day EMA is a smoothed average of the last 50 days of closing prices; price above it signals short-term momentum has turned up. RSI (14) measures recent buying pressure on a 0–100 scale; a reading above 40 after a selloff suggests momentum is stabilizing. ADX (14) gauges trend strength; a reading below 30 means no strong trend is established, which is actually required for this setup to fire. Exit rules include a signal exit if price closes below the 50-day EMA (currently met on both tickers, consistent with no active position), a take-profit at +4%, a stop-loss at -2%, a 61.8% Fibonacci retracement target, and a stop below the second-ranked support level (AVGO: $339.58; MTSI: $252.43). Position sizing is capped at 25% per position with fixed 2% risk per trade. Reward-to-risk on the roughly +2% to 4% band is 2:1 by construction, but this applies only once an entry has triggered — it cannot be claimed for a trade that has not started.

The fundamentals argue these chips stocks are not priced like they are broken

The idea's core claim — that AI-levered chipmakers are cheap despite sound businesses — is at least consistent with the operating results each company just reported, though the entry setup itself cannot be verified because this strategy's historical performance was not measured (the backtest engine could not reconcile Broadcom's raw and adjusted price series, so no return, drawdown or win-rate figure exists for any window). ### Broadcom's latest quarter is a step-change, not a drift AVGO's Q3 fiscal 2026 (ended August 2) revenue of $29.6B rose 33.4% quarter over quarter from $22.2B, and net income of $13.1B rose 40.6% from $9.3B. Operating margin expanded 5.3 percentage points to 53.9%. That is not the profile of a company whose demand story is fading — it is a business with accelerating operating leverage. For a re-rating thesis to work, fundamentals have to outrun a stale price, and this quarter widened that gap. ### Free cash flow conversion is elite and accelerating AVGO's free cash flow of $13.7B in Q3 was up 33.2% from $10.3B in Q2, and its trailing annual free cash flow reached $26.9B for fiscal 2025, up from $19.4B the prior year. Peer-percentile context makes the point sharper: that free cash flow ranks in the 99th percentile of over 1,000 Information Technology peers, and operating margin in the 98th. Cash generation of this quality is what typically forces a discounted quality stock back toward fair value — the cash either gets returned or gets noticed. ### Shareholder returns are funded and growing AVGO pays a trailing dividend of $2.60 per share, with annual per-share payments rising from $1.49 in 2021 to $2.42 in 2025, roughly 10.2% annual growth. The latest $0.65 quarterly payment…

Scores

• Conviction score breakdown: 53
• Thesis support: 62
• Trade readiness: 28
• Risk quality: 42
• Fundamentals trend: 78

Watch items

• AVGO — Close vs 50-day EMA
• AVGO — RSI (14)
• MTSI — Close vs 50-day EMA
• MTSI — RSI (14)
• AVGO — Insider net open-market value
• MTSI — Insider net open-market value