We recently published a list of 10 AI Stocks That Will Skyrocket. In this article, we are going to take a look at where Broadcom Inc. (NASDAQ:AVGO) stands against other AI stocks that will skyrocket.
Enterprise AI is expected to Drive Earnings in 2025
Some investors are heavily scrutinizing Big Tech’s AI spending. Despite these hefty expenditures, Big Tech has been enjoying solid revenues and earnings growth. Yung-Yu Ma, CIO at BMO Wealth Management, recently joined Yahoo Finance to shed light on the overall AI sector outlook heading into 2024.
Ma believes that companies are increasing their investments in AI in anticipation of higher returns. He said that it makes sense that the market is less likely to be enthusiastic about this situation. Ma argued that while spending on AI is likely to increase, there is a certainty that the results will soon show, maybe by the end of 2025.
He added that the market will probably see healthy earnings growth in 2025. Spending is broadly going to drive these earnings, particularly AI and its different use cases such as data centers, electricity grids, and other infrastructure. He expects an overall growth in valuation and shared that Big Tech is extremely confident and committed to pouring investment into the sector.
A Glance at Some Revolutionary AI Startups
2024 has been quite a year for artificial intelligence. Existing startups like Anthropic and Databricks have been performing exceptionally well and transforming the industry.
Anthropic is an AI safety and research company behind the OpenAI rival, Claude. On November 24, Anthropic extended its partnership with AWS, involving another $4 billion investment, bringing the total to $8 billion. The partnership also positions AWS as Anthropic’s primary cloud and training partner. Keeping up with the partnership, on December 4, Anthropic began optimizing Claude models to be able to run on AWS Trainium 2.
Databricks, the data and AI company, is another AI startup crucial to the AI revolution. Some of the products by Databricks include data management solutions, data warehousing, real-time analytics, data sharing, and data governance. The company is expanding to new heights. On November 6, the company partnered with KT Corporation to boost data and AI innovation in Korea. Following the trend, on November 20, Databricks announced it saw 70% annualized growth in its French business and has launched a new office in central Paris.
Our Methodology
To come up with AI stocks that will skyrocket, we consulted media reports to shortlist stocks that are expected to perform exceptionally well according to analysts and strategists. After consulting 10 similar rankings on the internet we examined the Street-High upside for each stock and picked the ones with the highest upside, as of December 3, 2024. Our list is in ascending order of the street high upside as of December 3, 2024. We have also mentioned the hedge fund sentiment for each stock.
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)
Street High Upside as of December 3, 2024: 44%
Number of Hedge Fund Holders: 128
Broadcom Inc. (NASDAQ:AVGO) designs and develops a range of semiconductor products and is well known for making application-specific integrated circuits (ASICs). It also provides infrastructure software products. Some of its products include cable modems, networking processors, and storage adapters. The company serves the data center, networking, software, broadband, storage, and wireless markets.
During 2024, Broadcom (NASDAQ:AVGO) launched breakthrough technologies that facilitate the management of large datasets for AI tasks, positioning it as an innovative leader. Aligning with its position, on November 15, the company unveiled VeloRAIN, a platform empowering AI networking beyond data centers. On the same day, AVGO, extended its offerings to offer a private cloud platform to accelerate customers’ autonomy over AI workloads.
Broadcom’s (NASDAQ:AVGO) cloud computing platform for enterprises promises a solid growth opportunity as it leverages artificial intelligence. AVGO’s revenue from AI is expected to grow by 10% sequentially to $3.5 billion, bringing the full-year total to $12 billion, driven by ethernet networking and custom accelerators for AI data centers. Analysts are also bullish on the stock and their high price target represents an upside of 44% from current levels.
ClearBridge Investments’ ClearBridge Large Cap Value Strategy stated the following regarding Broadcom Inc. (NASDAQ:AVGO) in its Q3 2024 investor letter:
“In IT, we bought Broadcom Inc. (NASDAQ:AVGO) as we believe the company has a long runway for growth with its custom silicon business, which should be more durable and less volatile than other components within the AI food chain. We also believe the acquisition of VMware creates another opportunity for steady, subscription-based durable growth that is still in its early innings. We believe the stock has an attractive risk/reward profile given the reasonable visibility toward mid-teens EPS growth at a low-20s P/E multiple. We made room for Broadcom by exiting Lam Research, whose shares we believed priced in a full recovery, while we grew increasingly concerned that China exposure might create an air pocket.”
Overall, MU ranks 5th on our list of AI stocks that will skyrocket. While we acknowledge the potential of SMCI to grow, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than SMCI 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.