30. Broadcom Inc. (NASDAQ:AVGO)
Consensus ROE: 9%
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 designs and sells a variety of semiconductor products such as modems, application specific integrated circuits (ASICs), and network controllers. These position Broadcom Inc. (NASDAQ:AVGO) well to benefit from a growing data center industry that is fueled by AI use. Additionally, the firm also benefits from its ASIC business when it comes to AI since ASICs are important chips for AI use cases. This is because they can be programmed to compute custom workloads, which is key for running custom AI models. Broadcom Inc. (NASDAQ:AVGO) stands to benefit from the shift in the industry to custom AI chips, with media reports indicating that OpenAI has approached it to develop a custom AI chip. The company also adds margin heavy revenue to its business via its cybersecurity division. Broadcom Inc. (NASDAQ:AVGO)’s recent VMWare acquisition enabled it to grow software revenue by 300% in fiscal Q3. Potential tailwinds include customers like Apple moving away from the firm to design custom chips for their products.
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.”
