We recently compiled a list of the 12 Best Technology Stocks to Invest In for the Long Term. In this article, we are going to take a look at where Broadcom Inc. (NASDAQ:AVGO) stands against the other technology stocks.
On January 1, King Lip, BakerAvenue Wealth Management’s chief strategist and partner, joined CNBC’s ‘Closing Bell’ to discuss market outlooks as we enter 2025. His focus was on the impressive performance of tech stocks in 2024, with expectations for a second consecutive year of double-digit gains. Lip was against the prevailing sentiment among investors that big tech has peaked and that funds should rotate into smaller stocks or other themes. He argued that the recent weakness in the tech sector is largely due to technical rebalancing rather than a fundamental downturn. He emphasized that cash is likely to flow back into leading tech stocks, as they are projected to deliver the highest earnings growth in 2025, with an anticipated earnings increase of over 20%.
Discussing high valuations in the tech sector, particularly for large-cap stocks trading at forward earnings multiples between 32 and 35 times, Lip countered that many valuations remain within one standard deviation of their historical norms over the past decade. He pointed out that the MAG7 have consistently provided strong returns and are well-positioned for future growth. Lip identified Broadcom as a top stock, praising its management under Hock Tan and its unique role in the market as a provider of custom AI chips. He noted that the company operates at a lower earnings multiple while benefiting from substantial growth.
Lip also discussed Palantir, which has garnered attention for its profitability and positive cash flow since becoming profitable two years ago; despite its high valuation exceeding 50 times revenue, he believes it is well-positioned to benefit from government spending cuts and AI initiatives. While acknowledging concerns about insider selling and high valuations for the company, Lip remains optimistic about its future potential, suggesting it could be more appealing if it drops to the mid-$60 range.
Lip is bullish on tech stocks in 2025 that will be driven by strong earnings growth and ongoing investments in AI infrastructure. The NASDAQ 100 index has performed remarkably well, achieving a return of 27% in 2024 following a staggering 53.8% return in 2023. This reflects a broader trend where major tech companies have outperformed traditional indices significantly, and with that being acknowledged, we’re here with a list of the 12 best technology stocks to invest in for the long term.
Methodology
To identify the best long-term tech stocks according to media, we sifted through financial media reports and watched Wall Street analysts’ appearances on the news. We compiled a preliminary list of 25 stocks first and then selected 12 stocks that were the most popular among elite hedge funds. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q3 2024. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers.
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: 128
Broadcom Inc. (NASDAQ:AVGO) provides semiconductor solutions and specializes in the design and development of application-specific integrated circuits (ASICs). It serves a range of markets, including data centers, networking, software, broadband, storage, and wireless. It has 3nm AI ASIC chip deals with Alphabet and Meta along with other tech giants aiming for AI hyperscaling.
For FY2024, revenue for the company reached a record $51.6 billion. AI alone generated $12.2 billion in revenue, a 220% surge year-over-year, representing 41% of semiconductor revenue. This was due to the demand for custom AI accelerators (XPUs) and AI networking solutions. In FQ4 2024, AI revenue reached $3.7 billion, representing 150% growth, driven by a doubling of AI XPU shipments to three hyperscale customers and 4x growth in AI connectivity revenue.
The company’s AI semiconductor revenue is expected to outpace non-AI semiconductor revenue in the coming years. Three hyperscalers are developing their own multi-generational AI XPU roadmaps, with each planning to deploy 1 million XPU clusters across a single fabric by 2027. This presents a significant Serviceable Addressable Market for XPUs and networking, estimated to be between $60-$90 billion by 2027. Broadcom Inc. (NASDAQ:AVGO) is on track for volume shipments of its next-generation 3-nanometer XPUs to hyperscale customers in H2 FY2025, solidifying its leadership position.
The company’s strong earnings and strategic positioning in the AI revolution make it a compelling long-term investment according to Columbia Threadneedle Global Technology Growth Strategy. It stated the following regarding Broadcom Inc. (NASDAQ:AVGO) in its Q3 2024 investor letter:
“Similar to the earnings results for Nvidia, shares of Broadcom Inc. (NASDAQ:AVGO) initially sold off after the company reported solid earnings that fell light of elevated market expectations, but the stock did recover from its drawdown in the matter of a few weeks. With an enticing combination of custom chip offerings as well as networking assets, Broadcom remains one of the best positioned companies as part of the AI revolution. Broadcom outlined a path to derive a majority of its revenue from the AI end market within a couple of years, and the non-AI part of the business has stabilized after a deep correction. The company’s dominant market position in its end markets, along with durable growth, strong margins and best-in-class capital allocation, presents an opportunity to compound capital over time.”
Overall AVGO ranks 9th on our list of the best technology stocks to invest in for the long term. As we acknowledge the growth 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.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.
