We recently compiled a list of the 10 Best Semiconductor Stocks to Buy for the AI Boom. In this article, we are going to take a look at where Broadcom Inc. (NASDAQ:AVGO) stands against the other semiconductor stocks.
More than two years have passed since the proliferation of the disruptive Artificial Intelligence (AI) megatrend, symbolically marked by the launch of OpenAI’s revolutionary product – ChatGPT. Since then, the AI revolution has accelerated rapidly, with 2023 and 2024 seeing a surge in demand for advanced AI applications across industries. This transformation has driven companies to increasingly rely on robust data centers that can support the computational power required by the intelligent algorithms.
In tandem with the rise of AI, the data center sector has experienced substantial growth. The need for larger, more efficient, and scalable data storage and processing capabilities has created a boom in infrastructure investments. Data centers, which house the powerful servers needed for AI workloads, have become critical enablers of this technology’s expansion. This increase in demand for data center capacity is a key factor that has propelled semiconductor stocks, as these centers rely heavily on cutting-edge semiconductors to deliver the speed, efficiency, and power necessary to process vast amounts of data in real time.
Our Methodology
We shortlisted 35 semiconductor stocks using the holdings of iShares’ Semiconductor ETF. Then we merged these stocks with Insider Monkey’s proprietary hedge fund holdings database and identified the 10 most popular hedge fund semiconductor stocks. Why are we interested in 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).
A technician working at a magnified microscope, developing a new integrated circuit.
Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Holders: 128
Broadcom Inc (NASDAQ:AVGO), the world’s sixth largest semiconductor company, generates over $30 billion annually and has expanded into software businesses alongside its semiconductor operations. It offers 17 core semiconductor product lines across wireless, networking, broadband, storage, and industrial markets, operating primarily as a fabless designer while manufacturing select products, such as its premium FBAR filters used in Apple iPhones. In software, Broadcom provides virtualization, infrastructure, and security solutions to enterprises, financial institutions, and governments. Formed through major consolidations, Broadcom combines legacy Broadcom and Avago Technologies in semiconductors with Brocade, CA Technologies, and Symantec in software.
Broadcom Inc (NASDAQ:AVGO) reported strong financial results for fiscal year 2024, with consolidated revenue growing 44% year-over-year to a record $51.6 billion. AI revenue grew 220% to $12.2 billion, representing 41% of semiconductor revenue. The company sees a massive AI opportunity over the next 3 years, expecting an AI revenue serviceable addressable market of $60 billion to $90 billion in fiscal 2027 for XPUs and networking from its 3 hyperscale customers. The integration of VMware is largely complete, with VMware revenue on a growth trajectory and operating margin reaching 70% exiting 2024.
Management of Broadcom Inc (NASDAQ:AVGO) provided detailed commentary on its AI opportunity, which is central to the growth story, during the Q4 2024 earnings call. Here is what they said:
“As you know, we currently have 3 hyperscale customers, who have developed their own multi-generational AI XPU Road map to be deployed at varying rates over the next 3 years. In 2027, we believe each of them plans to deploy 1 million XPU clusters across a single fabric. We expect this to represent an AI revenue serviceable addressable market, or SAM, for XPUs and network in the range of $60 billion to $90 billion in fiscal 2027 alone. We are very well positioned to achieve a leading market share in this opportunity and expect this will drive a strong ramp from our 2024 AI revenue base of $12.2 billion. Keep in mind though, this will not be a linear ramp. We’ll show quarterly variability.”
Overall AVGO ranks 3rd on our list of the best semiconductor stocks to buy for the AI boom. While we acknowledge the potential of AVGO as an investment, our conviction lies in the belief that 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 AVGO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
Disclosure: None. This article is originally published at Insider Monkey.
