1. Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Investors: 130
Jim Cramer discusses Broadcom Inc. (NASDAQ:AVGO)’s recent earnings report, noting some weakness in AI orders that caused a broader decline in tech stocks. While Cramer believes AI is not a bubble, he observes that tech stocks, which have been performing well, experienced a sell-off in September, particularly after Broadcom Inc. (NASDAQ:AVGO)’s report met expectations but did not exceed them.
Cramer mentions that Melius Research MD Ben Reitzes suggested that Broadcom Inc. (NASDAQ:AVGO)’s struggles might be due to some fluctuations in orders from Alphabet Inc. (NASDAQ:GOOG), a point not explicitly clear from the earnings call but one that makes sense to Cramer. Despite these, he still expects Broadcom Inc. (NASDAQ:AVGO) to recover.
“Broadcom gave us results that showed a tad bit of weakness in artificial intelligence orders, and the pin action took down the whole darn cohort. I don’t believe AI is a bubble, but these stocks are still up a great deal, especially in August. And September tends to bring out sellers when you get just in-line numbers. That’s what we got from Broadcom. It was in line, it wasn’t a shortfall.
Ben Reitzes, who I quote a lot because he’s really smart, said Broadcom was hurt by some choppiness in Google orders. That wasn’t clear from the conference call, but it makes a lot of sense. That business will bounce back.
The issue here isn’t Broadcom’s reaction, which took down most of the tech. No, it’s the overreaction to Broadcom that seemed to cascade into finance and then anything cyclical. The pain was palpable. To me, this is all about the zeitgeist, not the facts, because so many companies are doing well despite the slowing economy. However, you can’t waste time arguing with the sellers who suddenly want nothing whatsoever to do with this market. Nothing’s going to stop them from taking profits out of fear.”
Broadcom Inc. (NASDAQ:AVGO) is a strong investment opportunity, driven by impressive financial results and its key role in AI and semiconductor markets. In fiscal Q3 2024, Broadcom Inc. (NASDAQ:AVGO) reported a substantial 47.3% increase in revenue, reaching $13.07 billion, which exceeded analyst expectations. This growth is mainly due to its successful AI semiconductor solutions and the integration of VMware, which added $5.8 billion to its revenue. Broadcom Inc. (NASDAQ:AVGO)’s AI segment is expected to generate $12 billion in fiscal 2024, thanks to its advanced AI networking and custom compute solutions for data centers.
Although Broadcom Inc. (NASDAQ:AVGO)’s stock fell slightly after it projected Q4 revenues of $14 billion—just under Wall Street’s forecast of $14.04 billion—analysts remain positive about the company’s future. The rising demand from hyperscale customers for AI networking and custom accelerators highlights Broadcom Inc. (NASDAQ:AVGO)’s strong position in the AI hardware market. Analysts, including those from Oppenheimer, point out Broadcom Inc. (NASDAQ:AVGO)’s diversified business model and robust earnings potential, making it a promising long-term investment with considerable growth 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…” (Click here to read more)
While we acknowledge the potential of Broadcom Inc. (NASDAQ:AVGO), 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 the ones on our list but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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