We recently published a list of Jim Cramer’s Top 10 Hottest Stock Picks. In this article, we are going to take a look at where Broadcom Inc. (NASDAQ:AVGO) stands against Jim Cramer’s other hot stock picks.
In a recent post of Jim Cramer’s Morning Thoughts, he highlighted the impact of recent economic data on market sentiment. The S&P 500 is poised to fall for the fourth day in a row, following a weaker-than-expected August jobs report. The report revealed that the U.S. economy added 142,000 jobs last month, falling short of the Dow Jones estimate of 161,000.
“The S&P 500 is tracking for a fourth straight day of declines after the highly anticipated August jobs report came up short. Bond yields also moved lower on the report. The U.S. economy added 142,000 jobs in August, less than the Dow Jones estimate of 161,000, while the unemployment rate ticked down to 4.2% as expected.” Cramer said.
Despite this shortfall, the unemployment rate dropped to 4.2%, aligning with predictions. Additionally, the job gains for June and July were revised downwards. As a result, traders are now split between anticipating a standard 25 basis point interest rate cut and a more substantial 50 basis point reduction at the Federal Reserve’s upcoming meeting on September 18.
“Job gains in the June and July reports were also revised down Friday. Traders were split roughly evenly between a traditional 25 basis point interest rate cut and a larger 50 basis point reduction at the Federal Reserve’s policy meeting on Sept. 18.”
“We Got What We Wanted, But the Market Crashed”
In a recent episode of Mad Money, Jim Cramer discussed how September 6 turned out to be a disappointing trading day. Despite hopes from bullish investors for a weak non-farm payrolls report that would encourage the Federal Reserve to cut rates, the actual report met these expectations.
“What an ugly day. Just hideous. We came into today knowing we’d have a critical non-farm payrolls report. If you were a bull, you wanted to see weaker-than-expected hiring with wages pretty much in line, because that’s what the Fed needs to see before it can start cutting rates. Voila, we got exactly what we wished for. Maybe we should have been careful, though, because as soon as we got what we wanted, the bulls vanished and the sellers came out of the woodwork, crushing practically everything.” Said Cramer.
Jim Cramer pointed out that September is historically a weak month for the market due to significant profit-taking. Although it might seem circular to link September’s weakness to profit-taking, it’s more reasonable than attributing it solely to fears of a severe economic slowdown. Cramer emphasized that, despite the market’s dips, big tech companies, especially those involved in key trends like data centers and accelerated computing—should be considered as buying opportunities during these times.
“This market has a September problem. Come September, we’re always hit with a tremendous amount of profit-taking, which is why it’s the weakest month of the year. I know that’s somewhat circular reasoning—we sell because we’ve always sold—but it makes more sense than saying people sold tech because they fear a hard landing. Tech, especially big tech, is something you buy, not sell, into weakness if you’re worried about a more severe slowdown.
Why? Well, because big tech is all about powerful secular themes that can keep going even during a recession—and we’re not getting one. I’m talking about the data center, accelerated computing—they’re not going anywhere. Nevertheless, when anything jars the big tech themes of the moment, the market’s reaction is swift, harsh, and horrible.”
Jim Cramer Urges Investors: “Do Not Abandon Ship”
Jim Cramer discussed the upcoming release of the Consumer Price Index (CPI) on Wednesday, which will offer new insights into inflation. He noted that if inflation stays steady or falls, the Federal Reserve will have more room to cut interest rates, which could help prevent a recession and address concerns from many sellers. Cramer encouraged investors to remain confident and avoid abandoning their positions due to these uncertainties.
“Wednesday, we get another read on inflation—this time from the Consumer Price Index. What can I say? As long as inflation stays the same or goes lower, the Fed has plenty of leeway to cut interest rates and prevent a recession—the thing so many sellers are worried about. That’s why I keep telling you, please do not give up the ship here.”
At Insider Monkey we are obsessed with 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) reported quarterly results that exceeded expectations, but its guidance fell short, causing the stock to drop by 7%. Jim Cramer noted that compared to NVIDIA Corporation (NASDAQ:NVDA), Broadcom Inc. (NASDAQ:AVGO)’s performance was weaker, particularly in its artificial intelligence segment, which did not deliver standout results. However, the rest of the business appears to be stabilizing. Cramer advised reading the Club’s earnings bulletin before making any decisions about Broadcom Inc. (NASDAQ:AVGO).
“Broadcom and the weaknesses: The reported quarterly numbers beat estimates but guidance disappointed. The stock fell 7%. Read our earnings bulletin before you decide what to do with the stock. The Club chipmaker was worse than Nvidia. Artificial intelligence was not blowout. The rest of the business shows signs of bottoming.
Broadcom Inc. (NASDAQ:AVGO) is a strong investment option due to its impressive financial performance, strategic role in the AI market, and the transformative effect of its VMware acquisition. Recent earnings reports show a notable increase in AI-related chip sales, which are expected to top $11 billion for fiscal 2024. This growth highlights Broadcom Inc. (NASDAQ:AVGO)’s leadership in the sector and its ability to leverage new technology trends.
Broadcom Inc. (NASDAQ:AVGO) has also shown operational excellence with margins exceeding expectations, demonstrating its efficiency. The $61 billion acquisition of VMware is expected to enhance Broadcom Inc. (NASDAQ:AVGO)’s software capabilities and diversify its revenue, making the business model more robust. Despite a slight decrease in Q3 2024 guidance, analysts are still optimistic about Broadcom Inc. (NASDAQ:AVGO)’s long-term potential.
Mar Vista Focus strategy stated the following regarding Broadcom Inc. (NASDAQ:AVGO) in its Q2 2024 investor letter:
“During the quarter, we established new investments in Broadcom Inc. (NASDAQ:AVGO) and Meta Platforms. We initiated a position in Broadcom in Q2. As a skilled aggregator, Broadcom acquires firms, streamlines their operations, and invests R&D dollars in mission critical products that generate industry leading profit margins, robust cash flows and high returns on invested capital. Its primary markets include AI accelerators targeting generative AI applications, networking & wireless semiconductors, and mission-critical infrastructure software solutions.
Broadcom is well-positioned to benefit from the rapidly expanding demand for custom AI accelerator chips that support the evolution of the generative AI market. The company is the second-largest producer of AI accelerator chips behind Nvidia and leads the market in custom AI ASIC chips. Its customers include leading hyper scalers like Alphabet and Meta who are turning to Broadcom for custom silicon due to its performance and cost advantages. We believe the company is a direct beneficiary of a multi-year capital cycle driven by hyper scalers building out next-generation AI factories.
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.”
Overall AVGO ranks 2nd on our list of Jim Cramer’s hottest stock picks. While we acknowledge the potential of AVGO as an investment, our conviction lies in the belief that under the radar 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.
