15. Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Holders In Q2 2024: 130
Category: Most popular with HFs and underweight among mutual funds
Broadcom Inc. (NASDAQ:AVGO) is a diversified hardware and software company. On the hardware front, it is primarily a semiconductor designer that sells chips such as modems, network controllers, and ASICs. Its network processors and ASICs expose Broadcom Inc. (NASDAQ:AVGO) to revenue from the AI industry on multiple fronts. The processors are used in data center connectivity and the firm benefits from the growth in data centers stemming from higher AI use. Additionally, Broadcom Inc. (NASDAQ:AVGO)’s ASIC division means that it is able to design and sell chips tailor made for custom use cases. These are important in the AI era as well, especially since the industry’s mainstay GPUs from NVIDIA are in short supply and costly. Subsequently, Broadcom Inc. (NASDAQ:AVGO) can benefit from a growth in industry interest towards developing custom AI chips. On the software front, the firm benefits from high margin revenue through its cybersecurity division. Broadcom Inc. (NASDAQ:AVGO)’s fiscal Q3 saw software revenue jump by 300% due to its VMWare acquisition.
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.”
