2. Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Investors: 130
Jim Cramer explains that Broadcom Inc. (NASDAQ:AVGO) can be challenging to understand due to its complex operations, which aren’t widely known. He notes that unless someone delves into the intricate details of how data centers connect to the internet or the cloud, they might not grasp Broadcom Inc. (NASDAQ:AVGO)’s key growth drivers. After Broadcom Inc. (NASDAQ:AVGO)’s latest earnings report, the stock dropped from $153 to $137, despite beating expectations, because investors were concerned about the AI segment.
“Broadcom Inc (NASDAQ:AVGO) is one of the hardest stories to understand because there are so many moving parts that aren’t well known. In fact, unless you study the underlying plumbing that extends from the data center to the internet, or from the cloud to the data center, you probably wouldn’t even know Broadcom Inc (NASDAQ:AVGO)’s core growth driver. When these guys last reported, the stock fell from $153 to $137, even though it beat expectations because people didn’t like what they heard about the AI portion of the business.
Of course, Broadcom Inc (NASDAQ:AVGO) told you that its AI business remained in turbocharged growth mode and that its VMware acquisition—the business I was actually worried about—had turned the corner and gotten very strong. Almost nobody listened when the company told you all was well in AI. I wasn’t concerned about the AI division. Why? Because Hock Tan, the bankable CEO of Broadcom Inc (NASDAQ:AVGO), told us not to worry.
He said the AI business was going to accelerate. Instead of joining the negative chorus, I asked myself, “Why should I doubt this all-time great CEO when he’s been right for ages?” Now, the stock’s up to $164 and change, well above where it was trading before the so-called bad quarter. If you’d simply given this tremendous CEO the benefit of the doubt, you could have made a fortune in less than a week.”
Broadcom (NASDAQ:AVGO) offers an attractive investment opportunity due to its strong financial performance, strategic growth in artificial intelligence (AI), and diverse portfolio in the semiconductor and infrastructure software sectors. Broadcom (NASDAQ:AVGO)’s push into AI has boosted its revenue outlook significantly, with AI chip revenue expected to rise from $7.5 billion to $12 billion in FY2024, driven by high demand for AI infrastructure.
Broadcom (NASDAQ:AVGO)’s solid Q3 FY2024 earnings highlight its financial strength, with revenue reaching $13.1 billion and strong performance in both its semiconductor and software divisions. The positive trend will likely continue, with a Q4 revenue forecast of $14 billion and analysts predicting a rise to $63 billion by 2025. Despite recent stock fluctuations, Wall Street remains optimistic, with price targets indicating a potential increase of over 70%. Broadcom (NASDAQ:AVGO)’s strong position in AI, consistent financial performance, and favorable valuation make it a compelling long-term investment, even considering risks like competition and economic uncertainties.
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 Inc. (NASDAQ:AVGO) 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 Inc. (NASDAQ:AVGO) 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 Inc. (NASDAQ:AVGO) 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)
