2. 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.”
