5. Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Shareholders In Q1 2024: 115
Broadcom Inc. (NASDAQ:AVGO) provides networking chips used in AI and other products. Bernstein’s well known semi analyst Stacy Rasgon explained in June 2024 why Broadcom Inc. (NASDAQ:AVGO) is a top AI hardware stock. According to him, Broadcom Inc. (NASDAQ:AVGO) has the “second best AI story in the space” after NVIDIA, since it plays in the lucrative AI networking market. Rasgon believes that the networking market is just as important as the compute market led by NVIDIA. The average of 28 one year analyst share price targets for Broadcom Inc. (NASDAQ:AVGO) is $1,533 and the shares are rated Buy on average.
For their first quarter of 2024 shareholdings, 115 hedge funds polled by Insider Monkey had held a stake in Broadcom Inc. (NASDAQ:AVGO). Rajiv Jain’s GQG Partners owned the most valuable stake that was worth $3.9 billion.
Broadcom Inc. (NASDAQ:AVGO) has a forward price to earnings ratio of 29.94, which implies that AI has led to investors expecting it to outpace broader markets for growth. Baron Funds commented on the stock in its Q1 2024 investor letter and shared:
We also initiated a new position in Broadcom Inc., a global technology leader that designs, develops, and supplies a broad range of semiconductor and infrastructure software solutions. Its semiconductor solutions focus on complex digital, mixed signal, and analog products across a variety of end-markets while its software products help customers plan, develop, automate, manage, and secure applications across various platforms.
Historically, Broadcom’s semiconductor business has been a market-leading franchise with high margins and market-level growth, but the emergence of AI-related demand has spurred stronger growth across its portfolio, specifically in its Networking business unit. Broadcom’s AI-related revenue has grown from less than 5% of its semiconductor business to an expected 35% in its fiscal 2024 as its industry-leading Ethernet switch silicon business and, more importantly its custom silicon solutions, primarily the TPU for Google but with two additional customers ramping as well, have grown significantly. While custom chips tend to be less versatile and flexible than GPUs, their adoption makes sense if customers have large scale workloads with algorithms that are relatively stable, as they allow hyperscale customers to save costs on both upfront capex as well as on energy consumption. Over time, we believe that custom silicon solutions will obtain a noticeable market share of internal AI workloads, with Broadcom as the main beneficiary given its 10-year history of working with its customers, leading to a higher proportion of sales related to AI and an above-market growth in the company’s semiconductor solutions business.
