6. Broadcom Inc. (NASDAQ:AVGO)
10-Year Revenue Growth: 28.30%
Number of Hedge Fund Holders: 128
Broadcom Inc. (NASDAQ:AVGO) is a major global technology company that specializes in creating and providing a wide variety of semiconductors and software solutions. The company focuses on creating custom silicon chips that are essential for hyperscale data centers, thereby making it a significant player in the artificial intelligence industry.
The stock railed by more than 97% last year on the back of tailwinds from artificial intelligence. During the fiscal fourth quarter of 2024, Broadcom Inc. (NASDAQ:AVGO) generated $14.05 billion in revenue up 51% year-over-year. Growth was driven by increased demand for its AI accelerators (XPUs) and networking solutions as AI revenue for the same quarter went up by 220% year-over-year. Moreover, the acquisition of VMware has been pivotal for Broadcom, enhancing its capabilities in virtualization and cloud management. Management noted that its infrastructure software revenue grew to $21.5 billion during fiscal 2024, driven by the acquisition.
On January 23, Vijay Rakesh analyst at Mizuho raised his price target on the stock from $245 to $260, while keeping a Buy rating on AVGO. The analyst noted Broadcom Inc. (NASDAQ:AVGO) to be one of his top picks for 2025 as he believes the company will continue to gain strength from its demand for AI custom silicon chips.
Munro Global Growth Fund stated the following regarding Broadcom Inc. (NASDAQ:AVGO) in its Q4 2024 investor letter:
“Broadcom Inc. (NASDAQ:AVGO) contributed 94bps to Fund performance for the quarter. Broadcom is a fabless semiconductor company that designs semiconductors for a range of different industries and applications, based in Palo Alto, California. The company plays an important role in providing semiconductors for AI, specifically, they provide hyperscale data centre companies custom silicon chips. Over time, as companies such as Meta, Alphabet, Amazon and Microsoft build out their AI offering, the critical semiconductor content will come from both custom silicon chips, designed by companies such as Broadcom, and merchant silicon chips, designed by Nvidia. Depending on the use case, or workload, the hyperscaler will use either a custom silicon semiconductor or a merchant silicon semiconductor. Therefore, over time we expect AI processes to be driven by both Nvidia designed chips and custom designed chips from Broadcom and its peers.
On their recent earnings call, Broadcom CEO Hock Tan confirmed that the company’s customers are rapidly pursuing the development of a 1 million XPU cluster of chips. To translate what this means for Broadcom, Hock laid out the Serviceable Addressable Market (SAM) opportunity for the company’s AI revenues over the next 3 years to 2027. In 2024, Hock noted that Broadcom’s SAM was $15-20bn USD, of which the company commanded an approximate 70% share. In 2027, that SAM is expected to grow to $60-90bn USD, and assuming Broadcom captures an approximate 60% share, this gives rise to $50bn USD of AI revenue opportunity for the company over the next 3 years. For the company overall, this means that revenue has the potential to double over the next 3 years. We believe the technology road map outlined by Broadcom and the resulting revenue opportunity gives rise to a multi-year runway of earnings growth backed by a large structural change.”
