We recently compiled a list of the 10 Best NASDAQ Stocks To Invest In Right Now. In this article, we are going to take a look at where Broadcom Inc. (NASDAQ:AVGO) stands against the other NASDAQ stocks.
This year has been a healthy year for the American stock market, fueled by a strong performance from technology stocks. Several indices capped their best week of the year in early September as stocks rose ahead of the Federal Reserve meeting where the central bank was expected to cut interest rates. NASDAQ has led the charge and registered a 20% growth during the first half.
While the index lists over 3,100 companies from various sectors, the rally has been led by its top seven holdings which account for 52% of the index. All of them being tech stocks. There is a mix of optimism and skepticism among investors on whether NASDAQ will be able to continue its good run over the second half of the year. Historical data over the past decade shows that in most instances, NASDAQ has finished stronger during the back half of the year. There have only been two years between 2014 and 2023 during which NASDAQ’s year-end returns were lower than first-half returns.
However, Fundstrat Global Advisors’ Tom Lee, who is generally bullish on the stock market, told CNBC earlier this month that investors need to be cautious, as stocks could fall 10% during the next eight weeks amid interest rate cuts and the nervousness around the upcoming presidential elections. The co-founder of the research firm also suggested that if the dip is too strong, it should be viewed as a buying opportunity for investors. Lee has largely been on the money and nailed most stock calls this year.
Other analysts also anticipate market volatility ahead of the presidential elections. Liz Young Thomas, the head of investment strategy at SoFi, while talking to Business Insider noted that stock activity lags between June and August while traders are on vacation. This results in strong market performance aided by thinner trade volumes. The activity jumps up significantly in September when they return to their desks, which often leads to stock price volatility. According to her, a two percent shift in share price in either direction has become the norm in September. However, during election years, the volatility is at its peak in mid-October instead of September, and the market returns to normalcy after the results are announced.
LPL Financial’s Adam Turnquist also expects seasonal shakiness in the months ahead, but pointed out, like Lee did, that the dip presents an opportunity to buy when the share is trading low and earn high returns when the market stabilizes.
Buying the September or October lows has been a very good trade. October, things start to improve, and then you have this November, December, year-end rally, typically very high average returns and high positivity rates for those months.
Both Turnquist and Young Thomas agreed that existing portfolios should not be readjusted because of seasonal volatility because it is short-term and hard to forecast.
With that said, let’s head over to see some of the best NASDAQ stocks to buy right now, given the current trends and future projections.
Methodology
We scanned Insider Monkey’s database of 912 hedge funds for the second quarter of 2024 to look for stocks listed on NASDAQ and picked the top 10 companies with the highest number of hedge funds having stakes in them. We ranked them in ascending order of hedge fund holders in each company.
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) is a leading developer, manufacturer, and supplier of semiconductor and infrastructure software products headquartered in Palo Alto, California. The company has a diverse revenue stream, which provides it a competitive edge in the semiconductors industry by ensuring consistently high revenues through quarters. It offers a wide range of products and services, including wireless chips, AI networking solutions, and other accessories for 5G-compatible smartphone manufacturers. The company also sells optical components to firms in the automotive and industrial space.
The semiconductor company recently announced its Q3 2024 results, during which it beat earnings expectations with an EPS of $1.24 against forecasts of $1.22. Revenue for the quarter was recorded at $13.1 billion, registering a 47% growth year-over-year, while operating profit was up 44% compared to the same period in 2023. The management attributed these results to the strong surge in AI revenue, the acceleration of VMware bookings, and the stabilization of non-AI semiconductor sales.
Broadcom Inc. (NASDAQ:AVGO) completed its $69 billion acquisition of cloud computing company, VMware, in November last year, which is already paying dividends in the form of increased revenue in the infrastructure software segment. During the quarter, the segment generated a revenue of $5.8 billion, which was 200% higher year-over-year. Of this amount, $3.8 billion, or 65%, was contributed by VMware. Investors are confident that the integration of VMware is going to further aid in revenue growth in the times ahead. Mar Vista Focus strategy stated the following regarding Broadcom Inc. (NASDAQ:AVGO) in its Q2 2024 investor letter:
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.
Further reasons to be bullish about the stock stem from the fact that Broadcom Inc. (NASDAQ:AVGO) ended Q3 with $10 billion in cash. It is also taking steps to reduce its debt, and as part of these efforts, replaced $5 billion of floating rate notes with new fixed senior notes and used proceeds from the sale of VMware’s End-User Computing business to lower the floating rate by another $4.2 billion. Moreover, there are reports about the company being in talks with OpenAI on the development of a new artificial intelligence chip. This will help the ChatGPT-maker overcome the shortage of expensive graphic processing units by having its chips.
While the expectation of a decline in consolidated gross margins during Q4 because of a higher revenue mix of semiconductors has led to some bearish sentiment, the general outlook for the stock is bullish. The stock has received a Strong Buy rating from most Wall Street analysts and has a share price upside potential of around 11%. It is one of the best NASDAQ stocks to invest in right now, with 130 hedge funds having investments in the company, according to Insider Monkey’s database for Q2 2024.
Overall AVGO ranks 7th our list of the best NASDAQ stocks to invest in right now. While we acknowledge the potential of AVGO as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher 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.