Investing in fundamentally strong growth companies with sustainable competitive advantages can be a smart long-term strategy for savvy investors. With artificial intelligence (AI) emerging as a major investment trend, it’s no surprise that billionaires are also actively seeking out high-quality AI-powered stocks.
Broadcom (NASDAQ: AVGO) And Apple (NASDAQ: AAPL) seem to fit the bill and have been picked up by several billionaire investors and mutual funds. This is why retail investors should also follow their path and consider taking at least a small position in these stocks now.
Broadcom
Shares of Broadcom, a semiconductor chip designer and enterprise software provider, have risen 25% in 2024. While a 10-for-1 stock split in July 2024 played a major role in improving investor sentiment, many billionaire investors saw the stock’s growth potential in the second quarter of 2024. Some of the prominent investors included Ken Griffin’s Citadel Advisors, the late Jim Simons’ Renaissance Technologies, Ken Fisher Asset Management’s Fisher Asset Management, Israel Englander’s Millennium Management, Jerome Dodson’s Parnassus Investments Holdings and David Shaw’s DE Shaw.
The increasing adoption of complex AI technologies has emerged as one of Broadcom’s most prominent growth catalysts. Broadcom accounts for nearly 80% of the data center networking chip market share. In the third quarter of fiscal 2024 (ended August 4), the company’s networking segment revenue grew 43% year over year to $4 billion. The solid performance was driven by robust demand from hyperscalers for the company’s AI-optimized networking solutions and custom AI accelerators.
In the third quarter, sales of Ethernet switching products such as Tomahawk 5 and Jericho3-AI grew more than four times year-over-year. Sales of custom AI accelerators, which can be more efficient for specific activities than general-purpose GPUs, grew 3.5 times year-over-year in the third quarter. The AI ​​accelerator business is highly profitable and scalable, with high barriers to entry. The company subsequently raised its AI revenue forecast for fiscal 2024 from $11 billion to $12 billion.
The acquisition of virtualization software technology player VMware has also bolstered Broadcom’s enterprise software portfolio and reduced its reliance on hardware sales. VMware contributed $3.8 billion to third-quarter revenue. The company expects the high-margin VMware business to enable the company to achieve an adjusted EBITDA margin of nearly 64% by the end of fiscal 2024.
Broadcom’s stock price fell nearly 10% in late morning trading on Sept. 6, the day after the company reported third-quarter results. While the company beat analysts’ revenue and profit estimates, a weaker-than-expected fourth-quarter outlook appears to have hurt investor sentiment. However, that reaction seems overblown for a stock like Broadcom with solid fundamentals and robust growth prospects, and it’s likely to be short-lived.
Given the many upsides and the current decline in stock prices, Broadcom appears to be a good stock to buy in September 2024.
Apple
Although Warren Buffett’s investment company Berkshire Hathaway After cutting its stake in tech giant Apple by nearly 50% in the second quarter of 2024, many other billionaire investors have piled into the stock. Some of the prominent ones include Fisher’s Fisher Asset Management, Englander’s Millennium Management, Jeremy Grantham’s Grantham Mayo Van Otterloo, Griffin’s Citadel Advisors, Andreas Halvorsen’s Viking Global Investors and Sander Gerber’s Hudson Bay Capital.
Apple posted impressive results for its fiscal third quarter of 2024 (ended June 29), with revenue and earnings that beat analysts’ average estimates. The company’s ecosystem of products and services saw robust demand despite ongoing macroeconomic pressures.
Historically, the iPhone has been Apple’s biggest growth driver. Although iPhone sales fell 1% year-on-year to $39.3 billion in the third quarter, a recent Kantar study found that iPhone models are the best-selling smartphones in many major markets, including the US, urban China, the UK, Germany, Australia and Japan.
Apple recently launched its generative AI technology, Apple Intelligence, which will be integrated across its product line. The company expects Apple Intelligence to drive more customers to upgrade to newer iPhones capable of running these AI services. The company is gearing up for the launch of iOS 18, which will make iPhone more personal, intelligent and capable. Coupled with the fact that the iPhone installed base reached a new record at the end of the third quarter, the iPhone upgrade cycle could be a major catalyst for Apple in the coming years.
Apple’s digital services segment also reported record revenue of $24.2 billion, up 14 percent year over year. The services business is critical to securing recurring revenue streams and building a stable customer base. Services is seeing increased customer demand, thanks to the company’s large installed base of devices. Apple ended the third quarter with more than 1 billion paid subscriptions in the services segment, more than double the number four years ago. As the highly profitable services business becomes a larger part of Apple’s business, the company’s margins are well positioned to widen in future quarters.
Apple is trading at a trailing-12-month price-to-sales (P/S) ratio of 8.64 times, significantly higher than its five-year average (P/S) of 6.92 times. Despite the high valuation, the stock appears attractively priced compared to the majority of other AI-powered tech giants.
It may make sense for investors to take advantage of the billionaires’ investment analysis and consider taking a small stake in this stock now.
Should You Invest $1,000 in Broadcom Now?
Before buying Broadcom stock, here are some things to consider:
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Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
Billionaires Are Buying Up These 2 Best Artificial Intelligence (AI) Stocks With All Their Mouth Was originally published by The Motley Fool
