Goldman Sachs’ Best Phase 2 AI Stocks: Top 24 High Conviction AI Stocks

14. Broadcom Inc. (NASDAQ:AVGO)

Year To Date Share Price Gain: 67.20%

Number of Hedge Fund Investors in Q2 2024: 130

Broadcom Inc. (NASDAQ:AVGO) is one of the biggest technology companies in the world. The firm has multiple exposures to the AI sector courtesy of its diversified business model. For starters, Broadcom Inc. (NASDAQ:AVGO) is one of the leading chip designers in the world. It makes and sells modems and network controllers. Additionally, the firm’s application specific integrated circuits (ASICs) provide it with one of the most unique exposures to the AI sector. ASICs are customizable chips that compute user defined workloads, which allows Broadcom Inc. (NASDAQ:AVGO) to design AI chips for other firms such as OpenAI (which is reportedly in discussions with the company). This makes the firm a classic phase two AI stock, and Broadcom Inc. (NASDAQ:AVGO) also benefits from its cybersecurity division’s AI exposure. With data centers expected to grow in number, the demand for security products will also increase and can provide sizeable catalysts for Broadcom Inc. (NASDAQ:AVGO).

Baron Funds mentioned Broadcom Inc. (NASDAQ:AVGO) in its Q2 2024 investor letter. Here is what the firm said:

“Broadcom Inc. is a global technology leader that designs, develops, and supplies a broad range of semiconductor and infrastructure software solutions. The stock rose during the quarter as it reported strong earnings on the back of its two key growth drivers, AI semiconductors and its acquired VMware software business. The company once again increased its outlook for AI-related revenue, now expecting $11 billion or more this year (versus prior guidance for $10 billion), on the back of strength in both hyperscale custom compute and networking chips, where Broadcom maintains dominating share. In networking, Broadcom’s solutions are critical to enabling AI training factories to scale towards 100,000 chip clusters in the near term and 1 million chip clusters over the coming years. In AI custom compute, Broadcom designs custom accelerators for large consumer- internet AI companies (such as Google and Meta), who are building increasingly large AI clusters to drive improvements in user engagement and targeted advertising on their consumer media platforms. VMware remains on track to continue rapid sequential growth while simultaneously reducing operating expenses, driving faster-than-expected margin expansion and accretion, as management has simplified the product offering and is converting customers from a license model to subscriptions. We believe VMware will grow beyond the $4 billion near-term quarterly target, well above current analyst expectations. These two factors combined have caused a re-rating to the growth profile for the overall company. To quote CEO Hock Tan, “there is only one Broadcom. Period.”