We recently compiled a list of the Harvard University Stock Portfolio: Top 10 Stock Picks. In this article, we are going to take a look at where Broadcom Inc. (NASDAQ:AVGO) stands against Harvard University’s other stock picks.
When it comes to college prestige, Ivy League institutions lead the rankings. For an investment that can approach $60,000 per year in tuition and fees as of the 2022-2023 academic year, these schools promise an elite education and promising career prospects post-graduation. Although opinions may vary on which Ivy League school offers the best education, there’s no debate over which has the largest endowment. Harvard University’s endowment stands at an impressive $53.2 billion, bolstered by generous donations and strategic investments managed by the Harvard Management Company (HMC).
Founded in 1974, Harvard Management Company provides a dedicated funding stream that supports the university’s teaching and research, contributing over one-third of Harvard’s annual operating budget. In fiscal year 2024, Harvard’s endowment distributions totaled $2.4 billion, representing 37% of the university’s annual revenue. These funds supported key areas such as financial aid, faculty, and research initiatives. The university allocated $749 million toward financial aid across its schools, including $250 million for undergraduates. Harvard’s endowment portfolio is heavily weighted toward private equity and hedge funds, with private equity comprising 39% of the portfolio and hedge funds making up 32%.
According to Harvard Management Company CEO N.P. “Narv” Narvekar, the endowment targets an 8% return, and its seven-year annualized return of 9.3% has exceeded that goal. This performance currently places it mid-tier among Ivy League and other elite institutions. While its fiscal year 2024 return did not match Columbia’s 11.5% or Brown’s 11.3%, it outpaced those of MIT, Cornell, Dartmouth, and the University of Pennsylvania. Despite fiscal year 2024 being a strong period for public equities, with the S&P 500 frequently hitting record highs, Narvekar states that HMC’s strategy of lower public equity exposure still delivered robust returns:
“In FY24, public equity and hedge fund portfolios stood out for their strong performance. This is a particularly positive indicator, since HMC’s hedge fund portfolio has less equity exposure than most hedge fund indices, yet still outperformed during a strong year for equities.”
Notably, HMC significantly reduced the endowment’s exposure to real estate and natural resources, scaling it down from 25% in 2018 to just 6% in fiscal year 2024. This strategic shift has contributed positively to the endowment’s overall returns. Large-cap technology equities, particularly in the IT sector, may have also boosted returns for the fund. Michael Markov, founder of Markov Processes International, suggested that Harvard likely benefitted from “overweighting IT and the Mag 7 relative to the broad S&P 500.” Markov considers fiscal year 2024 a success for Harvard and a testament to HMC CEO Narvekar’s strategy of overhauling the university’s complex portfolio during his seven-year tenure.
Our Methodology
For this analysis, we examined Harvard Management Company’s stock portfolio from the third quarter of 2024. The stocks are ranked based on the firm’s stake value in each holding.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A technician working at a magnified microscope, developing a new integrated circuit.
Broadcom Inc. (NASDAQ:AVGO)
Harvard Management Company’s Stake: $89.6 million
Broadcom Inc. (NASDAQ:AVGO) ranks among the world’s largest technology companies, with operations spanning the hardware and software sectors. The company’s primary strength is in hardware, as it supplies networking and custom chips across diverse applications.
In its third quarter, Broadcom Inc. (NASDAQ:AVGO) reported $13.1 billion in revenue, a 47% year-over-year increase driven by strong AI revenue, VMware bookings, and robust non-AI semiconductor sales. Looking ahead to Q4 2024, Broadcom Inc. (NASDAQ:AVGO) expects AI revenue to grow 10% sequentially, reaching $3.5 billion, which would bring the annual AI revenue to $12 billion, largely fueled by ethernet networking and custom AI accelerators for data centers.
On November 6, Bank of America reiterated a Buy rating on Broadcom Inc. (NASDAQ:AVGO), projecting strong AI revenue growth with a CAGR of 30-35% in the coming years due to the company’s leadership in AI computing and networking and its strong free cash flow. However, BofA adjusted its fiscal 2025 earnings forecast for the company, citing “seasonal headwinds” linked to a product transition for Google’s Tensor Processing Unit (TPU), which may impact early-year revenue. This effect is expected to be offset by new AI and networking contracts, along with increased content opportunities with Apple, potentially leading to an adjusted EPS of $7.31 by 2026.
Overall AVGO ranks 7th on Harvard University’s list of top stock picks. While we acknowledge the potential of AVGO as an investment, our conviction lies in the belief that certain 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 more promising than 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 is originally published at Insider Monkey.
