We recently published a list of 11 trending AI stocks according to the latest news and analyst ratingsWith Broadcom Inc (NASDAQ:AVGO) ranking fourth on the list, the company deserves a closer look.
Investors remain cautious after a major global sell-off rocked markets last week on recession fears. Analyst warnings about tech companies’ astronomical capital spending and lack of transparency on returns are also likely to keep tech companies’ valuations in check in the coming weeks.
Speaking to CNBC last month, Roger McNamee of Elevation Partners referenced a Goldman Sachs report that said returns on AI investments could fall short of investors’ expectations.
“The level of capital investment in this sector, currently in the billions of dollars, is so high that it is almost inconceivable that we will achieve a return in the next few years that justifies this level of investment,” McNamee said.
Speaking to Bloomberg, Aisa Ogoshi of JPMorgan Asset Management said there was some “adjustment” ahead in technology stocks as she expected the AI-centric rally to expand to other sectors.
“The key is to keep an eye on earnings trends. It’s easy to panic in these times, but seriously, we should just sit down, look at the numbers and reassess our positioning.”
When asked if she plans to reduce her exposure to AI stocks in the coming days, the analyst said she will be “more selective” in AI investments and increase the quality of stocks in the portfolio.
For this article, we’ve selected 11 trending AI stocks based on the latest news, earnings, and analyst ratings. For each stock, we’ve mentioned the number of hedge fund investors. Why do we care about the stocks hedge funds invest in? The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (Further details can be found here).
A technician works on a magnifying microscope and develops a new integrated circuit.
Broadcom Inc (NASDAQ:AVGO)
Number of hedge fund investors: 115
BofA Securities believes Broadcom Inc (NASDAQ:AVGO) is one of the best beaten technology stocks and offers an attractive entry point after the recent sell-off.
TD Cowen named Broadcom Inc (NASDAQ:AVGO) as one of the stocks that can benefit from the rise in AI spending in a recent note. Analysts at the firm said there are “no signs” of generative AI demand slowing down, highlighting that Broadcom Inc (NASDAQ:AVGO) recently raised its full-year AI outlook. Broadcom Inc (NASDAQ:AVGO) expects AI-related revenue of $11 billion in 2024.
Broadcom Inc (NASDAQ:AVGO) recently announced its second quarter results. Revenue for the quarter grew about 43% year-over-year. AI revenue grew a whopping 280% year-over-year for the same period. Broadcom’s revenue streams are diverse and not based on a single source. They include enterprise, networking, storage, data center/hyperscaler, industrial, and consumer. For 2024, AVGO has increased its annual revenue forecast to over $51 billion and expects growth of over 40%. A significant portion of this growth is expected to come from the software space, which would also improve margins.
The company’s Ethernet business is also strong thanks to partnerships with Arista Networks (ANET), while the company also works with Dell (DELL), Juniper (JNPR) and Super Micro (SMCI) in the networking business and other segments. Broadcom has also developed ASIC AI chips in partnership with Google and Meta Platforms.
Due to this strong growth and upcoming catalysts, AVGO stock appears undervalued at a P/E ratio of around 25.
Aristotle Atlantic Large Cap Growth Strategy made the following comment on Broadcom Inc. (NASDAQ:AVGO) in its Investor letter Q2 2024:
“Broadcom Inc. (NASDAQ:AVGO) is a leading global technology company that designs, develops and delivers a broad range of semiconductor and infrastructure software solutions. The company strategically focuses its research and development resources to exploit niche opportunities in target markets and leverage its extensive portfolio of U.S. and other patents and other intellectual property to integrate multiple technologies and develop system-on-chip components and software solutions that target growth opportunities. Broadcom develops products and software that deliver high performance and provide mission-critical functionality. The company has a long history of innovation in the semiconductor industry and offers thousands of products used in end products such as enterprise and data center networking, home connectivity, “set-top box broadband access,” telecommunications equipment, smartphones and base stations, data center servers and storage systems, factory automation, power generation and alternative energy systems, and electronic displays. Broadcom differentiates itself through its powerful design and integration capabilities and focuses on developing products for target markets where it believes it can achieve attractive margins.
We believe Broadcom’s semiconductor business is very well positioned to benefit from long-term growth in data center networking driven by AI and cloud computing. The company continues to invest in research and development, and we see this as a competitive advantage for the company. Broadcom’s infrastructure software business is a recurring revenue business model that provides mission-critical mainframe support software to its customers. The recent acquisition of VMware will strengthen this business strategy and accelerate the growth of this business unit as VMware’s product suite includes key tools for AI server upgrades. Our long-term investment thesis is supported by Broadcom’s success in its strategy to maintain technology and market share leadership in mission-critical markets with high switching costs and large profit pools.”
Overall, Broadcom Inc (NASDAQ:AVGO) ranks 4th on Insider Monkey’s list of the title 11 trending AI stocks according to the latest news and analyst ratings. While we recognize the potential of Broadcom Inc (NASDAQ:AVGO), we believe AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than AVGO but worth less than five times its earnings, read our report on the cheapest AI stock.
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Disclosure: None. This article was originally published on Insider Monkey.
