We recently compiled a list of the 10 Best AI Stocks to Buy According to Reddit. In this article, we are going to take a look at where Broadcom Inc. (NASDAQ:AVGO) stands against the other AI stocks.
As artificial intelligence becomes more prevalent in current world affairs, new patterns concerning its research and development strategies are also emerging. Traditionally, academia has focused on basic research and education, while industry concentrated on applied research and commercialization. However, in recent years, the commercial sector’s dominance in AI investment and research has raised concerns about the balance of power. The shift of researchers from academia to industry has also raised questions.
Advanced AI systems increasingly require large amounts of data, compute power, and funding resources that industry actors possess in greater quantities than academia and nonprofits. Hence, AI research, which was originally the domain of academia in the early 2000s is now being taken over by industry.
We recently talked about this division in another article we published, 7 Most Popular AI Penny Stocks Under $5, here’s an excerpt from it:
“A recent study from Stanford University found that businesses train AI models faster than academic institutions. In 2023, the industry-trained AI neared 51 significant machine learning models, while academia managed only 15. This trend persisted in 2024 despite rising training costs. ChatGPT 4, the latest model of ChatGPT, cost about $80 million to train. Google’s Gemini Ultra cost around $191 million.”
A 2021 Stanford report says that the reason behind the blurring roles of academia and industry is that businesses come with affordable cloud computing, open-source libraries, and pre-trained models that incentivize university researchers to pursue commercial applications of their work. More and more industry papers are now appearing at conferences, raising concerns about applied research stifling long-term innovation or being biased toward corporate interests, all while also accelerating solutions for real-world problems.
A 2023 paper in the journal Science states that businesses attract 70% of the top talent with PhDs in AI today, as compared to just 20% 2 decades ago. The number of AI research faculty in academia has stagnated, while industry hiring has surged 8 times since 2006. Industry models being substantially larger (about 29 times), indicating superior computing power, is a huge reason behind this.
In 2021, US government agencies allocated a total of $1.5 billion for academic AI research, while Google spent the same amount on a single project in just one year.
The largest AI models are now developed in industry 96% of the time. Leading benchmarks are also primarily industry-driven, accounting for 91% of the total. Furthermore, the number of published papers with industry co-authors has nearly doubled since 2000.
Yet, there’s another anticipated shift as academic researchers are increasingly able to deploy their inventions in real-world settings. Duolingo, a language learning app developed by academics, is a successful example.
A distinguished MIT professor, Frédo Durand, believes academia can still be a driving force for innovation. He says that 25 years ago, the field of computer graphics in academia faced a similar resource imbalance where the industry created stunning visuals that academia couldn’t match. However, instead of trying to mimic industry, academia took a different path and focused on ideas like advanced lighting simulations, fluid dynamics, and machine learning for animation. These seemingly outlandish ideas eventually became the foundation of modern rendering and graphics hardware.
Durand believes this approach holds valuable lessons for AI research. He emphasizes the importance of academia pursuing unconventional approaches, openly sharing their work, and maintaining a sense of excitement about the field.
However, he recognizes the challenges for academia and suggests potential solutions including increased government funding for academic research, shared research infrastructure, and strategies to keep top AI talent within academia. While industry seems to be taking over AI in general, collaborative partnerships with academia could yield better results. In one way or the other, AI will remain a hot topic in the coming times.
Methodology
To compile our list, we sifted through several active subreddits to compile a list of 15 AI stocks to buy. We then selected the 10 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, 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).
A technician working at a magnified microscope, developing a new integrated circuit.
Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Holders: 130
Broadcom Inc. (NASDAQ:AVGO) designs, develops, and manufactures a wide range of semiconductor components and integrated circuits, as well as software solutions, and is known for its expertise in wireless communications, broadband access, and enterprise storage. It is focused on cloud computing, data centers, networking, broadband, and wireless communications.
The company is exploring AI chip designs with famous tech giants. Its custom chip designs and networking semiconductors are integral to building AI systems. Stacy Rasgon, Bernstein’s semiconductor analyst, acknowledges the company’s strong AI potential, networking and computing power, and attractive valuation. He believes that despite challenges in the core business, its AI focus and strong financial performance make it a compelling investment.
Currently, 130 hedge funds have stakes worth $20.035 billion in Broadcom Inc. (NASDAQ:AVGO). Rajiv Jain’s GQG Partners is the company’s largest shareholder with $32.35 million shares worth $5.2 billion.
In the second quarter, Broadcom Inc. (NASDAQ:AVGO) saw its revenue from AI products hit a record $3.1 billion, which signals a 280% year-over-year growth. The total revenue growth was 42.99%, generating $12.49 billion in revenue. The earnings per share in this period were $1.10.
CEO, Hock Tan, projected that total AI sales for 2024 would exceed $11 billion. Management raised revenue guidance to over $51 billion for this year through strong growth, driven in part by the software revenue. Overall, the company’s Ethernet business is thriving. Partnerships with Arista Networks and other tech giants like Dell, Juniper, and Super Micro are driving growth. Additionally, Broadcom has collaborated with Google and Meta to develop ASIC AI chips. All of these actions position Broadcom Inc (NASDAQ:AVGO) for success.
Mar Vista Investment Partners, LLC stated the following regarding Broadcom Inc. (NASDAQ:AVGO) in its Q2 2024 investor letter:
“During the quarter, we established new investments in Broadcom Inc. (NASDAQ:AVGO) and Meta Platforms. We initiated a position in Broadcom in Q2. As a skilled aggregator, Broadcom acquires firms, streamlines their operations, and invests R&D dollars in mission critical products that generate industry leading profit margins, robust cash flows and high returns on invested capital. Its primary markets include AI accelerators targeting generative AI applications, networking & wireless semiconductors, and mission-critical infrastructure software solutions.
Broadcom is well-positioned to benefit from the rapidly expanding demand for custom AI accelerator chips that support the evolution of the generative AI market. The company is the second-largest producer of AI accelerator chips behind Nvidia and leads the market in custom AI ASIC chips. Its customers include leading hyper scalers like Alphabet and Meta who are turning to Broadcom for custom silicon due to its performance and cost advantages. We believe the company is a direct beneficiary of a multi-year capital cycle driven by hyper scalers building out next-generation AI factories.
Broadcom recently acquired VMware, the leader in virtualization software targeting the enterprise market. The integration of VMware is tracking ahead of plan as management has simplified its product bundles, transitioned to a subscription revenue model, and reduced operating costs. We believe this simplified go-to-market structure will result in strong top-line revenue growth and expanding operating margins. We believe Broadcom will compound intrinsic value per share in the mid-20% range over the intermediate term as it benefits from the AI-infrastructure build-out, a cyclical recovery in its legacy semiconductor business, and modestly accelerating growth from its infrastructure software business as VMware is successfully integrated.”
Overall AVGO ranks 5th on our list of the best AI stocks to buy. While we acknowledge the potential of AVGO as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high 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.
