In this article, we’ll explore Jim Cramer’s Top 10 Stocks to Track for Potential Growth.
In a recent episode of Mad Money, Jim Cramer points out the surprising strength in the market, noting that many companies are performing better than Wall Street recognizes. He argues that people should stop doubting these companies every time there’s a negative data point. Cramer highlights the impressive management and execution by CEOs, which often goes unnoticed.
“Suddenly, all is forgiven, or if not all, then at least most. I’m talking about the incredible resilience in this market, buoyed by a recognition that many companies are simply better than Wall Street gives them credit for. We need to stop turning against them every time there’s a seemingly bad data point. Every day I come to work, I’m dazzled by the resourcefulness of executives who do their best to create value for you, the shareholder. Lots of stocks went up on days like today when the Dow advanced 335 points, the S&P gained 75%, and the NASDAQ jumped 1.0%, all thanks to good management and excellent execution that often goes unnoticed.”
While Cramer acknowledges that some CEOs deserve skepticism, he emphasizes that many are outstanding and deserve recognition for their hard work. He criticizes the focus on short-term economic indicators and emphasizes that great companies aren’t distracted by minor fluctuations.
“Listen, I’m not a pushover. I can hit CEOs with tough questions when needed, some of them deserve skepticism and scorn. But there are also plenty of brilliant, hardworking CEOs with incredible teams, and you ignore their hustle at your own peril. This often gets lost in the shuffle when we’re focused on the parlor game of guessing the Fed’s next move—a quarter point, half a point, quarter, half. You know what I say? Let’s get serious. Terrific companies don’t get caught up in that quarter-half shuffle.”
Cramer explains how Kroger CEO Rodney McMullen has led the supermarket chain to success despite challenges, including resistance to its acquisition of Albertsons and a tough economic environment. McMullen has managed to keep food costs down and deliver strong results through effective strategies like a superior loyalty program and regional store improvements. Despite high food prices, the company’s stock rose more than 7% following a positive earnings report, showcasing the company’s successful turnaround.
“CEO Rodney McMullen has managed to keep food costs down and deliver fantastic numbers, all while maintaining an expensive, unionized labor force in a very uncertain commodity environment. How? The company confounded critics by developing a superior loyalty program, regionalizing their stores, and creating some of the best private-label products out there, second only to Costco. Food is still expensive, but cooking at home is far cheaper than dining out. McMullen tells us that consumers are no longer flush with cash, especially his most budget-conscious clientele. He notes, “Budget-conscious customers are buying more at the beginning of the month to stock up on essentials, and as the month progresses, they become more cautious with their spending.”
Wow, that’s a tough environment. When I heard this, I thought back to the old company, the one that used to miss its numbers whenever the environment got a little tough. Everybody else remembers the old company too, which is why the stock was just sitting there waiting to be picked up, until this quarter’s report, after which it soared more than 7% in response to the fabulous results. Everyone thought the company would drop the ball, as they used to, but McMullen has finally whipped his supermarket into shape.”
Cramer contrasts this with the tech industry, where complex details often lead Wall Street to misunderstand a company’s true potential. He believes that in tech, analysts frequently overlook the expertise and capabilities of CEOs who have a deep understanding of their businesses.
“We all need to eat, so it’s not hard to understand the grocery business. But it’s quite different when it comes to tech, where analysts constantly doubt the resolve and expertise of CEOs who simply know more about their businesses than the critics. In tech, the complexity often leads Wall Street to conclusions that have little to do with reality.”
Our Methodology
This article reviews a recent episode of Jim Cramer’s Mad Money, where he discussed several stocks. We selected and analyzed ten companies from that episode and ranked them by the level of hedge fund ownership, from the least to the most owned.
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).
Jim Cramer’s Top 10 Stocks to Track for Potential Growth
10. Adidas AG (OTC:ADDYY)
Number of Hedge Fund Investors: N/A
Jim Cramer believes that Adidas AG (OTC:ADDYY) is performing well, along with several other companies, except for NIKE, Inc. (NYSE:NKE), which has been struggling recently. Cramer highlights that while NIKE, Inc. (NYSE:NKE) faces challenges, Adidas AG (OTC:ADDYY) and other competitors are showing stronger performance.
“I have to say that Adidas AG (OTC:ADDYY) is doing well too. Everyone other than NIKE, Inc. (NYSE:NKE) is performing well.”
In Q2 2024, Adidas AG (OTC:ADDYY) saw an 11% boost in currency-neutral sales, primarily due to rising consumer demand and better sell-through rates. This resulted in a gross margin improvement of 50.8%, demonstrating Adidas AG (OTC:ADDYY)’s efficient cost management and brand strength.
Additionally, its DDoS business grew by 16%, highlighting steady momentum across key regions. Adidas AG (OTC:ADDYY)’s focus on major sporting events in 2024 further fueled demand, leading to a nearly 19% increase in stock price, reflecting strong investor confidence. With a market capitalization exceeding $46 billion, supported by high-profile partnerships and a commitment to sustainability, Adidas AG (OTC:ADDYY) is poised for continued growth and long-term success.
Here is what Polen International Growth Fund has to say about adidas AG (NYSE:ADDYY) in its Q1 2022 investor letter:
“We added to the Portfolio’s position in adidas AG as we believe the company’s management team is making strides in positioning the company for faster growth. Innovative product development, along with interesting design and marketing collaboration initiatives, have been unlocking the company’s growth potential.
We also believe the continuing shift away from wholesale distribution to direct-to-consumer sales should drive steady margin progress. We estimate that adidas will grow earnings in the high teens annually over the next five years.”
9. Topgolf Callaway Brands Corp. (NYSE:MODG)
Number of Hedge Fund Investors: 17
Jim Cramer believes that Topgolf Callaway Brands Corp. (NYSE:MODG) has the potential to recover and become a valuable stock once it separates from Topgolf, which he sees as a burden. He admits that his initial optimism about the merger was misplaced and now feels more skeptical. Cramer hopes both businesses can improve after the separation, but he is less confident about Topgolf Callaway Brands Corp. (NYSE:MODG)’s future prospects. He refers to the current situation as a corporate setback, reflecting disappointment in the performance of the combined entities.
“I think a standalone Topgolf Callaway Brands Corp. (NYSE:MODG) has the potential to turn itself around and could be a good value stock once it’s no longer burdened by the Top Golf albatross. Here’s the bottom line, you need a healthy amount of skepticism to survive in this stock-picking business, and I wasn’t skeptical enough about Topgolf Callaway Brands Corp. (NYSE:MODG)’s acquisition of Top Golf. I hope both businesses can turn things around once they separate, although I’m far less optimistic about the future of Top Golf. For now, this is just a pure corporate tragedy.”
Topgolf Callaway Brands Corp. (NYSE:MODG) presents a strong investment opportunity due to its impressive earnings and promising growth potential across its varied portfolio, which includes Topgolf Callaway Brands Corp. (NYSE:MODG), and lifestyle brands. Despite some macroeconomic challenges, the Topgolf segment continues to drive growth, with Q2 2024 revenue up 5% and operating income rising 27.5%, showcasing its resilience and efficiency. While Topgolf Callaway Brands Corp. (NYSE:MODG) saw an 8.2% drop in equipment sales compared to last year’s successful Big Bertha launch, the brand’s strong reputation and demand for premium gear suggest it will recover.
Topgolf Callaway Brands Corp. (NYSE:MODG)’s $0.42 EPS in Q2 2024 reflects its ability to exceed earnings expectations, boosting investor confidence. Moreover, a strategic review of the Topgolf segment could unlock new growth opportunities through partnerships or investments. With a diverse portfolio that spans entertainment, sports, and lifestyle markets, Topgolf Callaway Brands Corp. (NYSE:MODG) is well-positioned for long-term success, making it an appealing investment even amid short-term economic pressures.
Polen U.S. Small Company Growth Strategy stated the following regarding Topgolf Callaway Brands Corp. (NYSE:MODG) in its fourth quarter 2023 investor letter:
“Topgolf Callaway Brands Corp. (NYSE:MODG) was created in 2021 with the merger of Callaway, a longstanding and slower-growing collection of high-quality golf brands, and Topgolf, an emerging sports and entertainment company. We spent over a year researching Topgolf Callaway as we sought to gain comfort with the level of earnings post-pandemic (golf popularity increased significantly and the Topgolf operating model. Importantly, we believe the Topgolf business model has significant room for growth both in units and in unit-level profitability. At the same time, the core Callaway brands provide ballast and cash flow to be reinvested to drive future growth.
Beyond stores/units, Topgolf Callaway Brands Corp. (NYSE:MODG) has invested in great brands and golf technology that we believe will create additional runways for growth. While the company is profitable, earnings have been under pressure over the past year. However, we believe they will reach an inflection point based on business mix and growth in Topgolf sometime in FY24, before growing at a consistent low-to-mid teens rate driven by store/unit expansion.”
8. Sofi Technologies Inc. (NASDAQ:SOFI)
Number of Hedge Fund Investors: 29
Jim Cramer sees a strong opportunity in buying SoFi Technologies Inc. (NASDAQ:SOFI) ahead of potential interest rate cuts. Despite the stock being down 25% this year, Cramer views SoFi Technologies Inc. (NASDAQ:SOFI) as well-managed under CEO Anthony Noto, who has appeared on Cramer’s show multiple times. Cramer believes that SoFi Technologies Inc. (NASDAQ:SOFI)’s current price drop presents a chance for investors to get in before rates begin to decrease. He also emphasizes that SoFi Technologies Inc. (NASDAQ:SOFI) is much more than just a company tied to student loans, urging people to recognize it as a fintech company, which is the core of its value.
“I think you buy Sofi Technologies Inc. (NASDAQ:SOFI) ahead of interest rate cuts. It’s down 25% for the year, even though it’s incredibly well-run. To me, this looks like an opportunity. Anthony Noto has come on the show several times, and we did need to see some news about rates. Frankly, I’d also like to see people stop equating this company solely with student loans. It’s a fintech, and that’s what matters.”
Sofi Technologies Inc. (NASDAQ:SOFI) is an appealing investment due to its strong growth in digital lending and neobank services, supported by its full banking license and robust consumer lending business. In Q2 2024, Sofi Technologies Inc. (NASDAQ:SOFI) ‘s revenue grew by 20.2% year-over-year, reaching $598.6 million, driven by high demand for its services.
Analysts have increased their Q3 2024 EPS estimate to $0.04, indicating improved profitability. The full banking license, acquired through Golden Pacific in 2022, gives Sofi Technologies Inc. (NASDAQ:SOFI) a competitive advantage by lowering funding costs and boosting profitability compared to non-bank rivals. Despite its growth, Sofi Technologies Inc. (NASDAQ:SOFI) is undervalued compared to traditional banks, with a favorable price-to-book ratio suggesting significant upside potential.
Additionally, Sofi Technologies Inc. (NASDAQ:SOFI)’s technological capabilities and efficient digital platform position it well in the expanding online financial services market. Overall, Sofi Technologies Inc. (NASDAQ:SOFI)’s revenue growth, banking license benefits, undervaluation, and technological strengths make it a strong candidate for long-term fintech investment.
Patient Capital Opportunity Equity Strategy stated the following regarding SoFi Technologies, Inc. (NASDAQ:SOFI) in its first quarter 2024 investor letter:
“SoFi Technologies, Inc. (NASDAQ:SOFI) fell in the first quarter despite delivering strong 4Q results and 2024 guidance supported by their non-lending businesses. The company continues to gain share in the digital lending and neo-banking space, consistently growing deposits at $2B a quarter. What differentiates the company is their focus on prime and super-prime customers (average FICO 749). Sofi is early in its life cycle, currently being a small player in a very large total addressable market (TAM). With their strong management team, we believe the company will continue to deliver on their guidance of strong growth and expanding margins.”
7. CAVA Group Inc. (NYSE:CAVA)
Number of Hedge Fund Investors: 33
Jim Cramer highlights CAVA Group, Inc. (NYSE:CAVA) as an example of a stock with remarkable growth. He initially recommended CAVA Group, Inc. (NYSE:CAVA) when it was priced at $32, and it has since surged to over $125, driven by several strong quarterly reports. Cramer points out that CAVA Group, Inc. (NYSE:CAVA) is up 192% just since the beginning of the year, showcasing its momentum. Cramer believes these figures, especially the rise in traffic, are exactly what investors want to see in the current market environment.
“Some stocks just don’t know when to quit. Take CAVA Group, Inc. (NYSE:CAVA), the fast-casual Mediterranean chain that went public a year ago. I started recommending this one at $32, and now it’s trading at $125 and change, thanks to a series of strong quarters. Heck, it’s up 192% just since the beginning of the year. The last time CAVA Group, Inc. (NYSE:CAVA) reported, toward the end of August, they delivered a tremendous quarter—14.4% same-store sales growth, mostly fueled by a 9.5% uptick in traffic, which is exactly what you want to see in this environment. So, can the stock keep climbing?”
CAVA Group, Inc. (NYSE:CAVA) is an attractive investment option due to its strong financial performance, rapid expansion, and positive outlook in the fast-casual restaurant industry, especially in Mediterranean cuisine. In Q2 2024, CAVA Group, Inc. (NYSE:CAVA) exceeded expectations with earnings per share of $0.17 and revenue of $233.5 million, demonstrating its ability to grow quickly while staying profitable.
CAVA Group, Inc. (NYSE:CAVA)’s aggressive expansion plan—opening 14 new restaurants in Q1 2024 and aiming to add 50-54 locations this year—positions it to capture more of the growing Mediterranean market. Analysts are optimistic, with firms like TD Cowen and Morgan Stanley(NYSE:MS) raising their price targets, reflecting strong confidence in CAVA Group, Inc. (NYSE:CAVA)’s growth. Additionally, CAVA Group, Inc. (NYSE:CAVA)’s improved restaurant-level margins and same-store sales growth highlight its operational efficiency and profitability.
Next Century Growth Small Cap Strategy stated the following regarding CAVA Group, Inc. (NYSE:CAVA) in its first quarter 2024 investor letter:
“CAVA Group, Inc. (NYSE:CAVA) is a fast casual restaurant chain serving authentic Mediterranean cuisine, featuring customizable bowls and pitas. CAVA currently owns and operates >300 stores, and the company targets a 15% plus new store growth rate. The intermediate goal is to have 1,000 stores by 2032 with plenty of opportunity to grow beyond that level. The company already delivers solid restaurant level margins >20% and they believe 3-5% same store sales growth is achievable over time. As the business matures, they should be able to leverage G&A expense which should lead to strong earnings growth over many years.”
6. MongoDB Inc.(NASDAQ:MDB)
Number of Hedge Fund Investors: 54
Jim Cramer believes MongoDB, Inc. (NASDAQ:MDB) is an enterprise software company delivering excellent results, but it isn’t receiving the same level of recognition as competitors like Salesforce.com (NYSE:CRM). He notes that investors generally seem to shy away from enterprise software companies, with the exception of Salesforce.com (NYSE:CRM). However, Cramer feels that MongoDB, Inc. (NASDAQ:MDB) is currently at a good price, suggesting it may be undervalued despite its strong performance. Cramer sees potential in MongoDB, Inc. (NASDAQ:MDB) and implies it deserves more attention in the enterprise software space.
“You know, MongoDB, Inc.(NASDAQ:MDB) is an enterprise software company that put up terrific numbers and isn’t getting credit in the same way Salesforce.com, inc. (NYSE:CRM) and others are. People tend to dislike enterprise software, except for ServiceNow. I think MongoDB, Inc.(NASDAQ:MDB) is at the right price.”
MongoDB, Inc. (NASDAQ:MDB) offers a strong case for long-term growth, driven by its outstanding financial performance and strategic advancements. In Q2 2024, MongoDB, Inc. (NASDAQ:MDB) reported a 40% jump in revenue, reaching $423.8 million, with its cloud-based Atlas platform accounting for 65% of total revenue. This growth exceeded market expectations and demonstrates the growing demand for its flexible database solutions. MongoDB, Inc. (NASDAQ:MDB) also turned its operating loss from the previous year into a profit of $53.6 million, reflecting its ability to grow while controlling costs.
Analysts are optimistic about MongoDB, Inc. (NASDAQ:MDB), with KeyBanc raising its price target to $543, citing MongoDB’s dominant position in the NoSQL database market and its potential to capitalize on rising demand from cloud and AI-driven applications. MongoDB, Inc. (NASDAQ:MDB)’s educational initiatives, such as partnering with India’s Ministry of Education to train 500,000 students, further strengthen its developer community and support future growth.
ClearBridge All Cap Growth Strategy stated the following regarding MongoDB, Inc. (NASDAQ:MDB) in its first quarter 2024 investor letter:
“During the first quarter, we initiated a new position in MongoDB, Inc. (NASDAQ:MDB), in the IT sector. The company offers a leading modern database platform that handles all data types and is geared toward modern Internet applications, which constitute the bulk of new workloads. Database is one of the largest and fastest-growing software segments, and we believe it is early innings in the company’s ability to penetrate this market. MongoDB is actively expanding its potential market by adding ancillary capabilities like vector search for AI applications, streaming and real-time data analytics. The company reached non-GAAP profitability in 2022, and we see significant room for improved margins as revenue scales.”
5. FedEx Corporation (NYSE:FDX)
Number of Hedge Fund Investors: 59
Jim Cramer believes that FedEx Corporation’s (NYSE:FDX) CEO, Raj Subramaniam, has done an impressive job in steering the company toward a long-term recovery. According to Cramer, this turnaround won’t lead to immediate or dramatic results, but it will unfold over several years. He suggests that investors consider buying FedEx Corporation’s (NYSE:FDX) stock before the company’s next earnings call, as he expects Subramaniam to present a compelling case for FedEx’s future growth. Cramer is confident that Subramaniam’s vision will provide a strong narrative, making it a worthwhile investment ahead of the conference.
“FedEx Corporation (NYSE:FDX)’s Raj Subramaniam has done a remarkable job. I believe it’s a multi-year turnaround—nothing that’s going to blow anyone away in the short term—but I think you should be in the stock ahead of the conference call because I believe he’s going to tell a very compelling story.”
FedEx Corporation (NYSE:FDX) is an attractive investment option due to its strong financial performance, effective cost-saving strategies, and solid market position. For fiscal 2025, FedEx Corporation (NYSE:FDX) projects impressive earnings with an EPS forecast of $18.25 to $20.25 and expects revenue growth in the low to mid-single digits. FedEx Corporation’s (NYSE:FDX)’s “DRIVE” transformation initiative aims to save $2.2 billion by optimizing its network and modernizing its fleet, boosting operational efficiency.
Additionally, FedEx Corporation (NYSE:FDX) plans to return substantial value to shareholders through $2.5 billion in stock repurchases and a 10% increase in dividends, showing confidence in its cash flow and future growth. Analysts are optimistic, with a 12-month price target averaging $317.78 and some estimates reaching $359, reflecting strong profitability and return on equity. Institutional interest and unusual options activity also suggest positive sentiment towards FedEx Corporation (NYSE:FDX)’s stock.
Longleaf Partners Fund stated the following regarding FedEx Corporation (NYSE:FDX) in its Q2 2024 investor letter:
“FedEx Corporation (NYSE:FDX) – Global logistics company FedEx was the top contributor for the quarter. Late in the quarter, FedEx reported strong fiscal year results, highlighting a year of strong cost management in a challenging revenue environment. Earnings per share (EPS) increased by 19%, and reduced capital expenditures narrowed the gap between EPS and FCF per share. With the increase in FCF, the company has become a significant share repurchaser, which is a welcome change.
The company also announced a strategic review of their Freight segment. Our appraisal has long accounted for the underappreciated value in FedEx’s less-than-truckload operations. A potential spin-off or sale could unlock substantial value, as comparable companies like Old Dominion trade at significantly higher multiples on revenue, cash flow, and earnings than those applied to FedEx Freight by the market and our appraisal today.”
4. McDonald’s Corporation (NYSE:MCD)
Number of Hedge Fund Investors: 67
Jim Cramer discusses the concept of price versus value using McDonald’s Corporation (NYSE:MCD)’s recent decision to maintain their $5 deal as an example. He notes that while this may be relevant for McDonald’s Corporation (NYSE:MCD), it doesn’t necessarily apply to other businesses, particularly if they operate in different sectors. Cramer emphasizes that discounting alone isn’t a path to success.
“Now, let’s talk about the notion of price and value. Today, McDonald’s Corporation (NYSE:MCD)’s announced they’re keeping the $5 deal, but that’s not really the point. Are they even in the same business as you? I think we’re in a different business. You can’t discount your way to prosperity.
We want to focus on the guest experience and the total value proposition, including the quality of what we offer. We’ve seen consumers willing to pay a dollar or two more, sometimes even at parity with the recent accelerated price increases in fast food. They would rather have a fresh bowl of Mediterranean food than a traditional fast food meal.”
McDonald’s Corporation (NYSE:MCD) is a strong investment choice for 2024, thanks to its solid financial performance, strategic growth plans, and innovative customer engagement. Despite a small drop in comparable sales and some economic challenges, McDonald’s Corporation (NYSE:MCD)’s achieved around $6.5 billion in revenue for Q2 2024, showing it can maintain growth. McDonald’s Corporation (NYSE:MCD)’s “Accelerating the Arches” strategy focuses on menu innovation, digital upgrades, and competitive pricing, which supports its long-term potential.
A major growth driver is its McDonald’s Corporation (NYSE:MCD)’s Rewards loyalty program, which has rapidly expanded to over 150 million active members, enhancing customer retention. McDonald’s Corporation (NYSE:MCD)’s is also lowering prices to attract more customers and expanding popular menu items like chicken to stay ahead in the industry. With the stock valued at about 21 times forward earnings, McDonald’s Corporation (NYSE:MCD)’s growth plans, including expanding its global restaurant network through 2027, make it an attractive investment.
Carillon Eagle Growth & Income Fund stated the following regarding McDonald’s Corporation (NYSE:MCD) in its first quarter 2024 investor letter:
“McDonald’s Corporation (NYSE:MCD) faces several short-term headwinds. Lower-income consumers have been cautious with spending, as they are feeling the cumulative effects of inflation more than higher-income cohorts. As the low cost/ value player in fast food, McDonald’s has a customer base that skews lower income. Also, as an international company, McDonald’s is feeling negative effects from war and tensions in the Middle East, as well as softness in China.”
3. Bank of America Corporation (NYSE:BAC)
Number of Hedge Fund Investors: 92
Jim Cramer suggests that Bank of America Corporation (NYSE:BAC) is likely to rebound once it becomes clear that Warren Buffett has sold enough of his shares so that his selling no longer negatively impacts the stock. Cramer notes that Bank of America Corporation (NYSE:BAC) remains relatively strong despite Buffett’s sales, especially given that it is priced at 11 times earnings. He believes Bank of America Corporation (NYSE:BAC) is a stock worth considering and expresses his positive outlook on it.
“Okay, Warren, got this. I think Bank of America Corporation (NYSE:BAC) snaps back the moment we see that he’s sold so much that he can’t hurt it anymore. It holds up rather well, considering it sells at 11 times earnings. That’s the one we want to be in, and I like it.”
Bank of America Corporation (NYSE:BAC) is an attractive investment due to its strong performance in Q2 2024 and focus on operational efficiency. Bank of America Corporation (NYSE:BAC) reported a solid net income of $6.9 billion and an EPS of $0.83, exceeding expectations and demonstrating resilience despite economic challenges. Its diverse revenue streams, including wealth management, corporate banking, and digital channels—along with ongoing cost-cutting efforts, set the stage for continued growth. Analysts expect moderate revenue increases throughout 2024, supporting Bank of America Corporation (NYSE:BAC)’s investment potential and reinforcing its position as a promising investment opportunity.
ClearBridge Value Equity Strategy stated the following regarding Bank of America Corporation (NYSE:BAC) in its first quarter 2024 investor letter:
“We added several new positions during the quarter. Our largest new addition was Bank of America Corporation (NYSE:BAC), one of the world’s leading financial institutions, serving some 66 million consumer and small business clients across the U.S. as well as large corporations, financial institutions and governments globally. We believe that the interest rate pressure that Bank of America faced in early 2023 has subsided, and risks surrounding deposit outflows have abated, which should allow the company to improve its book value and capital growth as well as benefit from a rebound of capital markets activity.”
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)
1. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Investors: 179
Jim Cramer highlights NVIDIA Corporation (NASDAQ:NVDA) as a standout despite recent negativity surrounding its performance. After a strong earnings report, NVIDIA Corporation (NASDAQ:NVDA) fell from $126 to $102, with many investors misunderstanding the company’s potential and even mispronouncing its name. This week, those who sold in panic might be regretting their decision.
Cramer notes that demand for NVIDIA Corporation (NASDAQ:NVDA)’s new Blackwell supercomputer chipset is so high that CEO Jensen Huang mentioned customers are becoming “emotional about allocation,” indicating strong demand rather than a shortage. Additionally, NVIDIA Corporation (NASDAQ:NVDA)’s use of accelerated computing with its advanced GPUs offers significant energy efficiency and cost advantages compared to traditional CPUs from companies like Intel Corporation (NASDAQ:INTC).
“Naturally, saving the best for last: NVIDIA Corporation (NASDAQ:NVDA). We got a huge quarter from them last month, yet all we heard was how disappointing the numbers were. Yeah, cancel the watch parties for NVIDIA Corporation (NASDAQ:NVDA), no more tailgating. The stock was trading around $126 before the quarter and fell to $102 at its lows last week. The world had given up on it, but they didn’t even know why or how. They didn’t even know what NVIDIA Corporation (NASDAQ:NVDA) does. They certainly can’t pronounce it—they say it like Nivea cream.
This week, those who panicked and dumped the stock. Well, guess what? I think they’re trying to remember why the heck they did something so foolish. We’ve now learned that demand is so strong for Blackwell, the new supercomputer chipset that is shipping in volume this year, that CEO Jensen Huang says customers are getting “emotional about allocation.” That sure doesn’t sound like NVIDIA Corporation (NASDAQ:NVDA)’s got a demand problem, as many critics speculated at the time.
It sounds more like they’ve got “too much” demand. Plus, Jensen talked about the other huge part of the business: accelerated computing. No one talks about that, which uses NVIDIA Corporation (NASDAQ:NVDA)’s ultra-fast graphics processing units (GPUs) to handle anything intensive, rather than the CPU, which is usually made by Intel. This approach is much more energy-efficient and faster, not to mention cheaper when it comes to energy consumption, which has become the key variable in the total operational cost of semiconductors. Next thing you know, the stock’s at $119. Can it get back to where it was before the so-called horrendous quarter? Can it hit 127 again? I don’t know. All I can say is: why not?
Look, it’s right to be skeptical when you’re investing. It’s right to be cautious. But the bottom line is, not every executive deserves the same level of skepticism or scorn. Some CEOs have earned your trust.”
NVIDIA Corporation (NASDAQ:NVDA) is a top investment pick due to its strong position in the AI sector, impressive financial performance, and growing presence in data centers. NVIDIA Corporation (NASDAQ:NVDA) leads in AI hardware with its powerful GPUs, like the A100 and H100, which are crucial for AI model training and inference. This leadership has significantly boosted NVIDIA Corporation (NASDAQ:NVDA)’s revenue.
In Q2 FY2024, NVIDIA Corporation (NASDAQ:NVDA) exceeded expectations with revenue reaching $26 billion, a 206% increase from the previous year, and an EPS of $4.02. The demand for NVIDIA Corporation (NASDAQ:NVDA)’s AI chips remains high, with growth expected to continue in data centers and AI applications through 2025 and beyond. NVIDIA Corporation (NASDAQ:NVDA)’s strategy to diversify its data center revenue across different sectors and regions strengthens its growth prospects.
While high valuation and potential fluctuations in AI demand are risks, Wall Street’s strong buy ratings and price targets up to $1,200 reflect NVIDIA Corporation (NASDAQ:NVDA)’s potential for significant returns, making it an attractive investment in AI and accelerated computing.
Ithaka US Growth Strategy stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q2 2024 investor letter:
“NVIDIA Corporation (NASDAQ:NVDA) is the market leader in visual computing through the production of high-performance graphics processing units (GPUs). The company targets four large and growing markets: Gaming, Professional Visualization, Data Center, and Automotive. NVIDIA’s products have the potential to lead and disrupt some of the most exciting areas of computing, including: data center acceleration, artifi cial intelligence (AI), machine learning, and autonomous driving.
The reason for the stock’s appreciation in the quarter was twofold: First, the stock benefi ted from tremendous excitement surrounding the further development of generative AI and the likelihood this would necessitate the purchase of a large number of Nvidia’s products far into the future; Second, Nvidia posted another strong beat[1]and-raise quarter, where the company upped its F2Q25 revenue guidance above Street estimates, showcasing its dominant position in the buildout of today’s accelerated computing infrastructure.”
While we acknowledge the potential of NVIDIA Corporation (NASDAQ:NVDA), 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.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
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