UBS’ Top Quant Stocks In AI, IT, Healthcare & Other Sectors: Top 33 Stocks In All Sectors

4. Broadcom Inc. (NASDAQ:AVGO)

Number of Hedge Fund Investors In Q2 2024: 130

Sector: Information Technology

Broadcom Inc. (NASDAQ:AVGO) is one of the biggest technology companies in the world. The firm operates in the hardware and software industries. Its key strengths lie on the former front, with Broadcom Inc. (NASDAQ:AVGO) responsible for providing networking and custom chips for a wide variety of use cases. These provide the firm with large customers like Apple and have enabled it to establish a foothold in the AI industry. Broadcom Inc. (NASDAQ:AVGO) benefits from AI through its custom chips, and word on the street is that the firm has partnered up with OpenAI to develop a custom chip. Yet, reliance on customers like Apple is a double-edged sword as it also exposes Broadcom Inc. (NASDAQ:AVGO) to revenue losses in case its customers decide to develop custom chips. On the software front, the firm’s VMWare acquisition has enabled it to sizably grow its revenue and could lead to further tailwinds in the future.

Baron Funds mentioned Broadcom Inc. (NASDAQ:AVGO) in its Q2 2024 investor letter. Here is what the firm said:

“Broadcom Inc. is a global technology leader that designs, develops, and supplies a broad range of semiconductor and infrastructure software solutions. The stock rose during the quarter as it reported strong earnings on the back of its two key growth drivers, AI semiconductors and its acquired VMware software business. The company once again increased its outlook for AI-related revenue, now expecting $11 billion or more this year (versus prior guidance for $10 billion), on the back of strength in both hyperscale custom compute and networking chips, where Broadcom maintains dominating share. In networking, Broadcom’s solutions are critical to enabling AI training factories to scale towards 100,000 chip clusters in the near term and 1 million chip clusters over the coming years. In AI custom compute, Broadcom designs custom accelerators for large consumer- internet AI companies (such as Google and Meta), who are building increasingly large AI clusters to drive improvements in user engagement and targeted advertising on their consumer media platforms. VMware remains on track to continue rapid sequential growth while simultaneously reducing operating expenses, driving faster-than-expected margin expansion and accretion, as management has simplified the product offering and is converting customers from a license model to subscriptions. We believe VMware will grow beyond the $4 billion near-term quarterly target, well above current analyst expectations. These two factors combined have caused a re-rating to the growth profile for the overall company. To quote CEO Hock Tan, “there is only one Broadcom. Period.”