What happened
After three days of uninterrupted selling -- and one terrifying note from Citigroup -- shares of semiconductors company Broadcom (AVGO 2.66%) are bouncing back on Tuesday.
As of 1:25 p.m. ET, Broadcom stock is up 4.3%.
Image source: Getty Images.
So what
Yesterday, if you recall, Broadcom featured prominently in a research note from Citigroup. In this note, the international investment banker warned of "incredibly bearish" investor sentiment surrounding chip stocks and suggested this bearishness was appropriate because of risks China poses to the industry.
Specifically, Citi hypothesized a what-if scenario in which China decides to invade Taiwan, shutting down international semiconductor companies' access to chip-manufacturing services from Taiwan Semiconductor Manufacturing Company (TSM +0.40%). In this -- hopefully unlikely -- scenario, Citi warned that "AMD has roughly 55% exposure to TSMC. ADI has roughly 40%, NVDA has roughly 50%, MRVL has roughly 60% [and] AVGO has roughly 75%" (emphasis added).
Semiconductor stocks of all stripes suffered from Citi's warning. Broadcom, however, with its 75% dependence upon TSMC for the semiconductors it sells, clearly seemed the stock most at risk.
Now what
Now granted, Citi's note was a warning -- not a statement of present-day fact and not even necessarily a prediction of what the banker thinks will happen in the future. Broadcom might just go tooling right along, generating 16% revenue growth at 27.5% net profit margins (as it did last quarter) for years without anything disastrous happening to it.
That being said, Citi presumably voiced its concerns for a reason. The banker also provided some options for investors who want to heed its warning, noting that GlobalFoundries (GFS 3.57%) and Intel (INTC 2.20%), for example, are two companies that investors remain "positive" on because they "don't rely on Taiwan."
As for me, given those two choices, I would lean toward an investment in Intel, which trades for less than 10 times earnings over GlobalFoundries, which hasn't earned any profits over the last four years.
