Broadcom Inc. (NASDAQ:AVGO) is no longer a “poor man’s Nvidia” but a company poised to explode and generate significant value. While Nvidia (NVDA) has outperformed the overall sector, its performance in recent weeks has been wanting. The stock is down by about 12% for the month. On the other hand, the steam is already picking up on Broadcom, which is up by about 35% over the past month and 106% for the year.
Broadcom’s (NASDAQ:AVGO) explosive run heading into 2025 stems from the company delivering stellar fourth-quarter results. It logged a 51% year-over-year increase in revenues to $14.05 billion. The increase came as the company benefited from expanding its AI solutions and completing the VMWARE integration. Full-year revenue grew 44% to a record high of $51.6 billion as infrastructure software revenue grew to $21.5 billion. Likewise, the company returned to profitability with an adjusted net income of $6.97 billion in the fourth quarter.
Continued strength in Broadcom’s (NASDAQ:AVGO) AI semiconductor solutions and software division is one factor that affirms Broadcom’s growth metrics and long-term prospects. According to Nancy Tengler of Laffer Tengler, Broadcom’s (NASDAQ:AVGO) has graduated from being the poor man’s Nvidia owing to its competitive edge as a software player in the burgeoning semiconductor space.
“Half of this company is software and Hock E. Tan has been kind of masterful in previous acquisitions. CA Technologies which used to be computer associated he acquired that in 2018 and it was in a creative acquisition within a year. You don’t see a lot CEOS able to pull that off. VMware uh the kind of same thing, its ahead of schedule in the integration and that adds depth and breadth and fills in the gaps when the cyclical semiconductor business you kind of wanes. So I like this company for the long term for a whole host of reasons,” said Tengler in an interview with CNBC.
The kind of reactions that Broadcom’s (NASDAQ:AVGO) is receiving in the market in the aftermath of better-than-expected fourth-quarter results is similar to that of Nvidia over the past year. Nvidia has become a 3 trillion dollar company by delivering record-breaking results amid strong demand for its graphic processing units.
A senior executive at a large desk reviewing the financial reports of the software and application company.
Similarly, Tengler believes Broadcom’s (NASDAQ:AVGO) is well positioned to follow in Nvidia (NVDA)’s footsteps, given the robust growth of its software division. Additionally, CEO Hack E Tan’s impressive track record in acquisitions and integration is one-factor Tengler believes will strengthen Broadcom’s growth metrics by unlocking new opportunities.
“I think it makes sense to do acquisitions and even bolt on. But He’s actually done big acquisitions historically,” added Tengler.
VMware accounted for roughly half of Broadcom’s $21.5 billion software revenue in fiscal 2024. Under Broadcom’s leadership, VMware has been expanding quickly, reporting 10% quarterly growth. Although software has grown in importance, accounting for 41% of revenue in the most recent quarter, Broadcom’s (NASDAQ:AVGO) primary growth engine for the upcoming years will be AI chips.
The company has already won the design contract for Alphabet’s next-generation tensor processing unit (TPU). While Meta Platforms TikTok owner ByteDance is the company’s reliable customer, OpenAI and Apple are also expected to strengthen the revenue base.
Broadcom’s (NASDAQ:AVGO) plans to deploy one million of its custom AI chips by 2027 owing to strong demand from its three biggest customers with an addressable market of between $60 billion and $90 billion in fiscal 2027 alone.
Broadcom Inc. (NASDAQ:AVGO) is on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 128 hedge fund portfolios held AVGO at the end of the third quarter which was 130 in the previous quarter. While we acknowledge the potential of AVGO as a leading AI investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as AVGO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
