Over-Owned AI Stock AVGO Leading Tech Stock Selling; Marijuana Stocks Rise on Trump Push; NATO Chief Warns

Author: The Arora Report | December 12, 2025 12:52pm

Tech Stock Selling

Please click here for an enlarged chart of Broadcom Inc (NASDAQ:AVGO).

Note the following:

• This article is about the big picture, not an individual stock.  The chart of AVGO is being used to illustrate the point.
• After the Oracle Corp (NYSE:ORCL) debacle, investors had been looking forward to earnings from AI chip maker Broadcom.
• The chart shows the spike up in AVGO stock on earnings.
• The chart shows the reversal in AVGO stock on the conference call.
• Here are the key points about Broadcom earnings:
  • The earnings were better than consensus and whisper numbers.  This is what caused the stock to initially rally.
  • On the conference call, AVGO stock fell indicating that the margins will be about 100 bps lower.
• In our analysis, here are the important points about Broadcom that prudent investors need to know:
  • Broadcom has become over-owned.  A stock is over-owned when more investors than normal already own it, and they own much larger quantities than they would normally own.
  • When a stock like AVGO is over-owned, the slightest bit of news that is not positive causes buyers to simultaneously exit through the same narrow door.
  • AVGO stock has run up mostly on momo crowd buying.  Lately, there has been very little smart money buying.
  • Broadcom's AI revenue is mostly concentrated from one customer.  The customer is Alphabet Inc Class A (NASDAQ:GOOGL).  Broadcom has some revenue from Anthropic, but it is also around the Google design.
  • There is a lot of hype for custom silicon for AI.  However, investors are not understanding that custom silicon, when focused on one large customer, is inherently a low margin business.
  • In addition to being over-owned, Broadcom is also significantly overvalued.  As a reference point, Broadcom is more expensive than NVIDIA Corp (NASDAQ:NVDA) by several metrics.
• This morning, on the negative side, the dip in AVGO stock is bringing in selling in many tech stocks.  On the positive side, the momo crowd is aggressively buying the dip.
• Positive seasonality is in play.
• Investors continue to buy non-tech stocks as Fed Chair Powell was mostly dovish and not hawkish as anticipated.
• Aggressive buying in gold and silver that was triggered by Fed Chair Powell being dovish continues.
• In spite of rising yields, the 30-year Treasury auction went well.  Here are the details:
  • $22B 30-year Treasury bond
  • High yield: 4.773% (When-Issued: 4.774%)
  • Bid-to-cover: 2.36
  • Indirect bid: 65.4%
  • Direct bid: 23.5%

Marijuana Rescheduling

President Trump is planning to reclassify marijuana from Schedule I to Schedule III.  Marijuana stocks and ETFs are ripping higher, including AdvisorShares Pure US Cannabis ETF (NYSE:MSOS), Amplify Alternative Harvest ETF (NYSE:MJ), Tilray Brands Inc. (NASDAQ:TLRY), and Canopy Growth Corp (NASDAQ:CGC).  As full disclosure, we hold positions in marijuana stocks in our portfolio.

NATO Chief Warns

NATO Secretary General Mark Rutte warned during the Munich Security Conference that "Russia could be ready to use military force against NATO within five years."  Prudent investors should always attempt to get ahead of the curve.  Consider taking this warning from Rutte seriously.  As full disclosure, Select STOXX Europe Aerospace & Defense ETF (BATS:EUAD) is in our portfolio.

Magnificent Seven Money Flows

Most portfolios are now heavily concentrated in the Mag 7 stocks.  For this reason, it is important to pay attention to early money flows in the Mag 7 stocks on a daily basis. 

In the early trade, money flows are positive in Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc Class C (NASDAQ:GOOG), and Nvidia (NVDA).

In the early trade, money flows are neutral in Apple Inc (NASDAQ:AAPL), Microsoft Corp (NASDAQ:MSFT), and Tesla Inc (NASDAQ:TSLA).

In the early trade, money flows are negative in Meta Platforms Inc (NASDAQ:META).

In the early trade, money flows are positive in SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust Series 1 (NASDAQ:QQQ).

Momo Crowd And Smart Money In Stocks

The momo crowd is buying stocks in the early trade.  Smart money is inactive in the early trade.

Note for new readers: Smart money often sells into the strength generated by momo crowd buying and buys into the weakness generated by momo crowd selling.  Over a long period of time, investors come out ahead by adopting smart money's ways.  The exception is in a raging bull market – for very short term trades, consider following the momo crowd and not smart money.

Very Very Short-Term Indicator

Our proprietary very, very short-term early stock market indicator is positive.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Gold

This morning, both gold and silver and seeing aggressive buying.  The buying is specially aggressive in miners.  As full disclosure, gold miner Newmont Corporation (NYSE:NEM) and mining ETF State Street SPDR S&P Metals & Mining ETF (NYSE:XME) is in our portfolio.

Bitcoin

Bitcoin (CRYPTO: BTC) is range bound.

What To Do Now

Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider a protection band consisting of cash or Treasury bills or short-term tactical trades as well as short to medium term hedges and short term hedges. This is a good way to protect yourself and participate in the upside at the same time.

You can determine your protection bands by adding cash to hedges.  The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive.  If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.

A protection band of 0% would be very bullish and would indicate full investment with 0% in cash.  A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.

It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.  When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks.  High beta stocks are the ones that move more than the market.

Traditional 60/40 Portfolio

Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.

Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of five year duration or less.  Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.

The Arora Report is known for its accurate calls. The Arora Report correctly called the big artificial intelligence rally before anyone else, the new bull market of 2023, the bear market of 2022, new stock market highs right after the virus low in 2020, the virus drop in 2020, the DJIA rally to 30,000 when it was trading at 16,000, the start of a mega bull market in 2009, and the financial crash of 2008. Please click here to sign up for a free forever Generate Wealth Newsletter.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.

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