2. Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Holders: 130
Broadcom Inc. (NASDAQ:AVGO) is a California-based company that designs, develops, manufactures, and supplies semiconductor and infrastructure software products globally. The company has a foot in a range of industries and works on solutions for broadband Wi-Fi AP, data centers, financial services, enterprise security, broadband access, and automotive.
The company has products ranging from networking devices and optical technologies to enterprise security software under the Symantec brand. In 2023, it completed the transaction to acquire cloud computing and virtualization technology company, VMware LLC. According to Broadcom (NASDAQ:AVGO), its infrastructure software segment, which is largely fueled by VMware’s performance, generated $5.8 billion in revenue in fiscal Q3, representing a 200% increase compared to the previous year.
The company highlighted that VMware’s transformation is progressing well, with significant growth in VMware Cloud Foundation bookings, representing 80% of VMware products booked in the quarter. This resulted in an annualized booking value of $2.5 billion, up 32% from the prior quarter.
The company’s overall Q3 earnings show strong growth and resilience in the face of market fluctuations. It achieved consolidated net revenue of $13.1 billion, a remarkable 47% increase year-over-year, with an operating profit of $7.9 billion, up 44%.
Broadcom (NASDAQ:AVGO) projects Q4 revenue of approximately $14 billion, which would be a 51% increase year-over-year, and forecasts adjusted EBITDA to reach 64% of revenue. These results show its strategic positioning in high-demand markets, especially in AI and infrastructure software.
It is the 2nd best momentum stock on our list and is also one of the most important AI stocks according to BlackRock. It is quite popular among institutional investors as recently Mar Vista Investment Partners said in its Q2 investor letter that the company is positioned to capitalize on the rising demand for custom AI accelerator chips in the generative AI sector. As the second-largest manufacturer of these chips after Nvidia, it specializes in custom AI ASICs and serves major hyper scalers like Alphabet and Meta, who appreciate its performance and cost efficiency. The company is expected to benefit from a multi-year capital cycle as hyperscalers invest in AI infrastructure.
Additionally, Parnassus Investments stated the following regarding Broadcom Inc. (NASDAQ:AVGO) in its Q2 2024 investor letter:
“During the second quarter, the Fund’s overweight position in the Information Technology sector decreased slightly as we sold our position in Cisco Systems and used most of the proceeds to buy Broadcom Inc. (NASDAQ:AVGO), a leading semiconductor company and provider of custom silicon products. Both stocks provide similar exposure to networking technology, but we believe Broadcom offers more upside from AI infrastructure spend and defensiveness due to its software assets.
Broadcom, a leader in semiconductor and infrastructure software, offers promising AI upside via data center ethernet and custom ASICs and can benefit if the iPhone’s new AI features gain traction this year. Additionally, the strength of its enterprise software assets in VMware, Symantec and CA Technologies could provide defensiveness if enterprise IT spending continues to be muted.”
