4) Broadcom Inc. (NASDAQ:AVGO)
Average Upside Potential: 34.90%
Broadcom Inc. (NASDAQ:AVGO) develops connected devices and Internet infrastructure, ranging from physical optic fiber to antennas, semiconductors, and software. The company remains active across the infrastructural, industrial, and enterprise-level connectivity sectors.
Therefore, it has a presence at every level of IoT, from homes or factories to data centers. Ever since the company has acquired VMware, Broadcom Inc. (NASDAQ:AVGO) solidified its position as the market leader in the hybrid cloud management space. VMware is joining SEW-EURODRIVE, who is the a leader in drive automation solutions, to lead the transition to new era of software-defined manufacturing with SEW-EURODRIVE’s DriveOperations concept. This concept focuses on enhancing operational capabilities, reducing costs, and managing complex tasks more effectively.
The company, known for its diverse technological services and acquisition strategy, expects to see an increase in chip demand, courtesy of the ever-evolving field of generative AI. Given its recent acquisition of VMware, it has strengthened its product offerings. This is true mainly for custom and networking chips, which should see healthy growth because of AI advancements.
Wall Street analysts applauded the dominant position of the company in critical chip markets. These analysts are optimistic about the potential of VMware’s subscription-based growth. The stock of Broadcom Inc. (NASDAQ:AVGO) has seen a run-up of over ~70% in 1 year, thanks to a robust AI growth environment and integration of VMware. The stock now trades at ~24.63x its forward earnings, which is still at a discount to the sectoral average of ~32.2x.
The company released its 2Q 2024 results, where revenues came at $12,487 million, showcasing an increase of ~43% YoY. Its GAAP net income came in at $2,121 million and its non-GAAP net income was $5,394 million. Much of this improvement was driven by AI demand and VMware. The revenue from its AI products was $3.1 billion in 2Q 2024, a record for Broadcom Inc. (NASDAQ:AVGO). The infrastructure software revenue picked up pace as more enterprises adopted the VMware software stack so that they could build their private clouds.
Wells Fargo & Company raised its price objective on the shares of Broadcom Inc. (NASDAQ:AVGO) from $143.00 to $170.00, giving an “Equal-weight” rating on 13th June. It was held by 115 hedge funds in Q1 2024, with total stakes worth $14.7 billion.
Aristotle Atlantic Partners, LLC, an investment advisor, released its second quarter 2024 investor letter. Here is what the fund said:
“Broadcom Inc. (NASDAQ:AVGO) is a global technology leader that designs, develops and supplies a broad range of semiconductor and infrastructure software solutions. The company strategically focuses its research and development resources to address niche opportunities in target markets and leverage its extensive portfolio of U.S. and other patents and other intellectual property to integrate multiple technologies and create system-on-chip component and software solutions that target growth opportunities. Broadcom designs products and software that deliver high performance and provide mission-critical functionality. The company has a history of innovation in the semiconductor industry and offers thousands of products that are used in end products such as enterprise and data center networking, home connectivity, “set-top boxes broadband access”, telecommunication equipment, smartphones and base stations, data center servers and storage systems, factory automation, power generation and alternative energy systems, and electronic displays. Broadcom differentiates itself through its high-performance design and integration capabilities and focuses on developing products for target markets where it believes it can earn attractive margins.
We view Broadcom’s semiconductor business as being very well positioned to benefit from secular growth in data center networking, which is being driven by AI and cloud computing. The company continues to invest in research and development, and we see this as a competitive advantage for the company. Broadcom’s infrastructure software business is a recurring revenue business model that provides mission-critical mainframe support software to its customer base. The recent VMware acquisition will enhance this business strategy and accelerate the growth rate of this business unit, as VMware’s product suite includes key tools for AI server upgrades. Our long-term investment thesis is supported by Broadcom’s success in its strategy of maintaining technology and market share leadership in mission-critical markets with high switching costs and deep profit pools.”
