7. Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Holders: 130
Broadcom Inc. (NASDAQ:AVGO) is a leading developer, manufacturer, and supplier of semiconductor and infrastructure software products headquartered in Palo Alto, California. The company has a diverse revenue stream, which provides it a competitive edge in the semiconductors industry by ensuring consistently high revenues through quarters. It offers a wide range of products and services, including wireless chips, AI networking solutions, and other accessories for 5G-compatible smartphone manufacturers. The company also sells optical components to firms in the automotive and industrial space.
The semiconductor company recently announced its Q3 2024 results, during which it beat earnings expectations with an EPS of $1.24 against forecasts of $1.22. Revenue for the quarter was recorded at $13.1 billion, registering a 47% growth year-over-year, while operating profit was up 44% compared to the same period in 2023. The management attributed these results to the strong surge in AI revenue, the acceleration of VMware bookings, and the stabilization of non-AI semiconductor sales.
Broadcom Inc. (NASDAQ:AVGO) completed its $69 billion acquisition of cloud computing company, VMware, in November last year, which is already paying dividends in the form of increased revenue in the infrastructure software segment. During the quarter, the segment generated a revenue of $5.8 billion, which was 200% higher year-over-year. Of this amount, $3.8 billion, or 65%, was contributed by VMware. Investors are confident that the integration of VMware is going to further aid in revenue growth in the times ahead. Mar Vista Focus strategy stated the following regarding Broadcom Inc. (NASDAQ:AVGO) in its Q2 2024 investor letter:
Broadcom recently acquired VMware, the leader in virtualization software targeting the enterprise market. The integration of VMware is tracking ahead of plan as management has simplified its product bundles, transitioned to a subscription revenue model, and reduced operating costs. We believe this simplified go-to-market structure will result in strong top-line revenue growth and expanding operating margins. We believe Broadcom will compound intrinsic value per share in the mid-20% range over the intermediate term as it benefits from the AI-infrastructure build-out, a cyclical recovery in its legacy semiconductor business, and modestly accelerating growth from its infrastructure software business as VMware is successfully integrated.
Further reasons to be bullish about the stock stem from the fact that Broadcom Inc. (NASDAQ:AVGO) ended Q3 with $10 billion in cash. It is also taking steps to reduce its debt, and as part of these efforts, replaced $5 billion of floating rate notes with new fixed senior notes and used proceeds from the sale of VMware’s End-User Computing business to lower the floating rate by another $4.2 billion. Moreover, there are reports about the company being in talks with OpenAI on the development of a new artificial intelligence chip. This will help the ChatGPT-maker overcome the shortage of expensive graphic processing units by having its chips.
While the expectation of a decline in consolidated gross margins during Q4 because of a higher revenue mix of semiconductors has led to some bearish sentiment, the general outlook for the stock is bullish. The stock has received a Strong Buy rating from most Wall Street analysts and has a share price upside potential of around 11%. It is one of the best NASDAQ stocks to invest in right now, with 130 hedge funds having investments in the company, according to Insider Monkey’s database for Q2 2024.
