3) Broadcom Inc. (NASDAQ:AVGO)
5-year Sales Growth: ~17.94%
TTM net income: $5,895.0 Million
Number of Hedge Fund Holders: 128
Broadcom Inc. (NASDAQ:AVGO) is a leading semiconductor company having a diversified portfolio of products and technologies serving a wide range of markets. Fang Boon Foo, an analyst from DBS, maintained a “Buy” rating on the company’s shares, offering a price target of $200.00. This rating was driven by a combination of factors, including Broadcom Inc. (NASDAQ:AVGO)’s strategic growth through acquisitions, like the integration of VMware, which further cements the company’s position in the infrastructure software market. This inorganic growth strategy enables the company to differentiate itself via high-performance design and integration capabilities.
Furthermore, Broadcom Inc. (NASDAQ:AVGO) is expected to benefit significantly from the booming demand for AI chips. In FY 2024, the company’s semiconductor revenue sat at $30.1 billion, fueled by AI revenue of $12.2 billion. AI revenue went up by 220% YoY, courtesy of its leading AI XPUs and Ethernet networking portfolio. Moving forward, the strong outlook for its infrastructure software segment will also contribute to the company’s growth prospects. In FY 2024, Broadcom Inc. (NASDAQ:AVGO)’s revenue increased 44% YoY to a record $51.6 billion, with infrastructure software revenue increasing to $21.5 billion, on the successful VMware integration.
Munro Partners, an investment management firm, released its Q4 2024 investor letter. Here is what the fund said:
“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.”
