We recently compiled a list of the 10 Best S&P 500 Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Broadcom Inc. (NASDAQ:AVGO) stands against other S&P 500 stocks.
As per AXA Investment Managers, the US dominated financial markets this year. The investment firm believes that the broader economy has been stronger than anticipated with GDP growth running at an annualized rate of 3.0% in Q2. The blue-chip benchmark, S&P 500 index, has surged ~22% on a YTD basis. Also, the US fixed-income markets saw strong returns. Overall, the financial markets were supported by the success of the US Fed in dealing with inflation.
Interest rates have started to move lower, with credit markets reflecting the strength of the broader US corporate sector, per AXA Investment Managers. At the start of October 2024, the investment firm mentioned that a 50:50 allocation to the S&P 500 Growth equity index and the ICE US High Yield bond index might have resulted in a return of ~18% YTD.
S&P 500 Index – The Road Ahead
Forbes believes that the prevailing outlook for 2025 is cautious optimism. While the momentum in technology innovation, together with the environment of lower interest rates, should help the broader S&P 500 index, investors are required to be wary of certain risks. These include elevated valuations, global tensions, and uncertainty regarding the US presidential election.
According to ClientFirst Wealth, Legacy & Estate Planning, which is an independent, fee-only registered investment advisor (RIA), the ongoing innovation in AI and lower rates should help the S&P 500 Index see growth in the range of 14.5% – 19.6%. Another firm, Running Point Capital Advisors, expects the S&P 500 to see an increase of 7% – 11% in 2025, with some volatility. As per the company, the influencing factors include economic growth, expansion in earnings, higher mergers and acquisitions activity, and a favorable interest rate environment.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
Sectors To Keep on Radar
Forbes highlighted that investors are required to keep certain sectors, like technology, healthcare, and energy, on the radar in 2025. As per IDC, worldwide spending on AI, which includes AI-enabled applications, infrastructure, and associated IT and business services, should more than double by 2028 to reach $632 billion. The incorporation of AI, and generative AI (GenAI) in particular, in a range of products should result in a CAGR of ~29.0% over 2024-2028, which should help the broader technology sector.
Definitive Healthcare believes that investors should see more device makers and pharmaceutical companies jump on the D2C bandwagon in 2025. Also, ICRA, a Credit Rating Agency, expects a strong financial outlook for the broader hospital industry in FY 2025. The optimistic outlook stems from the increasing incidence of non-communicable lifestyle diseases, a rise in per capita healthcare spending, increased medical tourism, and penetration of health insurance.
US Energy Information Administration, in its short-term energy outlook report (October 2024), mentioned that the summer temperatures this year were warmer in the US as compared to last summer, mainly in the upper Midwest and Northeast regions, which supported pushing up the US electricity demand. EIA expects 2% more U.S. sales of electricity to ultimate customers in 2024 as compared to 2023, followed by another 2% expected growth in 2025. Overall, it expects electricity sales to increase throughout economic sectors. It projects that commercial electricity sales will rise by 3% this year followed by a 1% growth in 2025.
Our Methodology
To list the 10 Best S&P 500 Stocks to Buy According to Hedge Funds, we extracted the stocks from the S&P 500 index. After getting the list, stocks that were the most popular among hedge funds were chosen. Finally, the stocks were arranged in the ascending order of their hedge fund sentiment, as of Q2 2024.
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).
Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Holdings: 130
Broadcom Inc. (NASDAQ:AVGO) designs, develops, and supplies semiconductor and infrastructure software solutions.
Wall Street analysts opine that Broadcom Inc. (NASDAQ:AVGO)’s long-term growth trajectory is expected to be aided by its competitive advantages, which stem from intangible assets in chip design and switching costs for the software products. The company plans to continue its focus on hyperscalers, cloud, and digital natives for AI products. Broadcom Inc. (NASDAQ:AVGO) anticipates a recovery in non-AI markets and robust AI revenue growth in fiscal 2025.
Its strategic financial management, which includes debt restructuring and dividend payouts, demonstrates a commitment to maintaining a healthy balance sheet while, at the same time, delivering value to shareholders. Its focus on AI and collaboration with Seagate reflect its emphasis on innovation and market trends. Broadcom Inc. (NASDAQ:AVGO) has been positioning itself for strong growth in the rapidly evolving tech landscape.
The company is a critical player in the AI revolution, leveraging expertise in custom silicon and networking solutions in a bid to tap a substantial share of the expanding market. The robust demand for its AI accelerators and Ethernet solutions should continue to aid its topline. Broadcom Inc. (NASDAQ:AVGO)’s strong position in custom AI silicon and high-speed networking solutions position it as the leader in the AI revolution.
Analysts at Mizuho increased their price objective on shares of Broadcom Inc. (NASDAQ:AVGO) from $190.00 to $220.00, giving an “Outperform” rating on 14th October. Baron Funds, an investment management company, released its Q3 2024 investor letter. Here is what the fund said:
“We continued to build our position in Broadcom Inc. (NASDAQ:AVGO), a global technology leader that designs, develops, and supplies a broad range of semiconductor and infrastructure software solutions. As AI continues to proliferate, we believe hyperscalers – such as Meta, Microsoft Azure, Google Cloud Compute, and Amazon Web Services, to name just a few – will increasingly deploy custom accelerator chips for their AI workloads as they can be more cost-effective and energy-efficient than using NVIDIA’s general-purpose GPUs. Broadcom has a leading position partnering with hyperscalers to develop these custom chips, with its AI customer accelerator business up 3.5-times year-over-year in its most recently reported quarter, and a goal of at least $8 billion in custom accelerator revenues for this fiscal year. Additionally, VMware continues to perform better than expected as Broadcom is implementing its product simplification and subscription revenue model strategy. Further, its non-AI related semiconductor business, which tends to be more cyclical, is in the early stages of a recovery. Combined, all these factors will drive strong revenue and earnings growth over the next several years.”
Overall, AVGO ranks 7th on our list of 10 Best S&P 500 Stocks to Buy According to Hedge Funds. While we acknowledge the potential of AVGO as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued 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.