Meet These Artificial Intelligence (AI) Giant Billionaires Are Buying Hand Over Fist That One Wall Street Analyst Thinks Could Rise Nearly 50% Next Year
Retail investors today have access to a large amount of information about publicly traded companies. Not only do we receive quarterly reports to inform us about how companies are doing, but there are also sources that show us what others think about a particular stock. Two of the most useful types of information are analysts’ stock price targets and the reports showing what assets hedge funds have bought and sold.
Using these together while researching stocks can help you determine whether or not your opinion of a company is in the ballpark of the general consensus. One stock that has recently caught my attention, as well as the eyes of analysts and hedge funds, is Broadcom (NASDAQ:AVGO). The giant company has a long reach in technology, but its significant footprint in artificial intelligence (AI) makes it a hot stock.
Start your morning smarter! Wake up with Breakfast news in your inbox every market day. Register for free »
In the third quarter, several leading hedge fund managers bought shares of Broadcom. For example, Tiger Global Management (led by billionaire Chase Coleman) has increased its stake in Broadcom. Bridgewater Associates, founded by billionaire Ray Dalio (though he’s only now on the board), has nearly quadrupled its stake.
Wall Street analysts are also bullish on the stock. Rosenblatt set a Street-high price target of $240, about 50% higher than the current price. The average twelve-month price target of the 42 analysts covering Broadcom is $193, predicting a more modest 19% gain. But that’s still a strong performance that could easily beat the market.
Two major factors influencing hedge funds’ and analysts’ opinions on the stock are the company’s AI-related products and its VMware software.
Broadcom has its fingers in the AI ​​game in several ways, but the most prominent are its Ethernet switches and custom AI accelerators. The Tomahawk 5 and Jericho3 AI switches direct traffic to AI servers and are critical hardware for any company building a computing infrastructure on which to train AI models. Demand for these products was off the charts last quarter, with sales increasing 300% year over year. Sales of AI accelerators – custom products designed specifically for an end user to set up AI models in a particular way – increased 250% year over year. Demand for both products is expected to increase.
On the software side, the integration of VMware has given Broadcom’s business a huge boost. Broadcom bought VMware for $69 billion in November 2023, and it’s been a great acquisition so far. VMware provides software that allows customers to create virtual desktops, maximizing a company’s computing resources. Because VMware has been part of the company for less than a year, its addition to the quarterly picture distorts Broadcom’s year-over-year growth figures.
For example, in its fiscal third quarter ended August 4, Broadcom’s revenue grew 47% year over year to $13 billion. That seems impressive, but if you ignore VMware’s contribution, revenue only increased by 4%. Given the success of Broadcom’s AI product line, that low growth rate may seem strange, but its catalog is highly diversified and most product areas not related to AI have struggled.
Still, that hasn’t stopped investors from being optimistic about the stock: Broadcom’s share price has risen steadily through 2024. The stock currently trades for 26 times forward earnings, putting it in a similar valuation range as Metaplatforms (NASDAQ: META), Taiwanese semiconductor (NYSE: TSM)And Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL).
AVGPO PE ratio (forward) data by YCharts
Investors should be wondering whether Broadcom seems like a better investment than any of these other three AI plays. In my opinion, they all offer much better opportunities for value and growth, but that could easily change if the growth of Broadcom’s AI product line remains strong and the rest of its business accelerates.
Broadcom will likely be another strong AI investment, but it’s already quite comparable to other companies I’ve invested in, so I’ll probably pass on the stock unless something drastically changes in the company’s performance.
Consider the following before buying shares in Broadcom:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Broadcom wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $859,528!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. TheStock Advisoris on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns December 2, 2024
Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Keithen Drury has positions in Alphabet, Meta Platforms and Taiwan Semiconductor Manufacturing. The Motley Fool holds positions in and recommends Alphabet, Meta Platforms, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
Meet These Artificial Intelligence (AI) Giant Billionaires Are Buying Hand Over Fist That One Wall Street Analyst Thinks Could Rise Nearly 50% Next Year was originally published by The Motley Fool
