We recently published a list of the top 10 AI stocks based on the latest analyst ratings and news, and Broadcom Inc (NASDAQ:AVGO) ranks fifth on the list, so it's worth taking a closer look.
AI shares have fallen significantly in recent weeks, and analysts believe this is exactly the healthy correction long-term investors have been looking for. Rob Slymer, technical strategist at RBC Wealth Management, said AI shares are stabilizing at levels they can sustain for the rest of the year, according to Bloomberg. The analyst said technical indicators show AI shares have moved from overbought to oversold territory.
“Now that positions are being unwound, traders have an opportunity to get into positions,” Slimer was quoted as saying.
Many others have agreed with Slimer. On CNBC's latest show, Wedbush's Dan Ives reiterated his view that the AI bull market is still in its early stages.
“What we've seen so far, from the AI revolution to technology in general, has been positive on the bottom line, and the growth worries we've seen are simply bumps in the road as the Fourth Industrial Revolution unfolds,” Ives said.
In this article, we've highlighted 10 AI stocks that are making waves on the back of their latest earnings, analyst ratings, and important industry news. For each company, we've noted the number of hedge fund investors. Why are we interested in stocks that hedge funds are flocking to? The reason is simple: our research shows that you can outperform the market by mimicking the top picks from the best hedge funds. Our quarterly newsletter strategy selects 14 small and large stocks each quarter, and has returned 275% since May 2014, beating the benchmark by 150 percentage points (more here).
Is Broadcom Inc (NASDAQ:AVGO) an AI stock to watch with the latest analyst ratings and news?
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Broadcom Inc. (NASDAQ:AVGO)
Number of hedge fund investors: 130
Stacey Rasgon, senior U.S. semiconductor analyst at Bernstein, said in a recent interview with CNBC that she has “always” liked Broadcom and that it is her favorite semiconductor stock.
“I think Broadcom has the second best AI story in semiconductors after Nvidia.”
Rasgon said the company sells networking and computing power to hyperscalers, which analysts said helps the company “hide bad spots” in its core business. Analysts said Broadcom's AI guidance is conservative.
“We have some of the highest margins in the industry, some of the highest free cash flow, and we think valuations remain very attractive relative to the broader industry.”
In a new report, TD Cowen named Broadcom Inc. (NASDAQ:AVGO) as one stock that could benefit from rising AI spending. The firm's analysts said they see “no signs” of a slowdown in demand for generative AI and highlighted that Broadcom Inc. (NASDAQ:AVGO) recently raised its full-year AI outlook. Broadcom Inc. (NASDAQ:AVGO) expects AI-related revenues of $11 billion in 2024.
The story continues
Broadcom Inc (NASDAQ:AVGO) recently announced its second quarter results. Revenue for the quarter grew approximately 43% year over year. AI revenue during the same period grew an astounding 280% year over year. Broadcom's revenue streams are diverse and not reliant on any single source. This includes enterprise, networking, storage, data center/hyperscale, industrial, and consumer spaces. AVGO raised its annual revenue guidance for 2024 to more than $51 billion, expecting growth of more than 40%. A large portion of this growth is expected to come from software, which will also contribute to improved margins.
Its Ethernet business is also thriving thanks to a partnership with Arista Networks (ANET), and it has partnerships with Dell (DELL), Juniper (JNPR), and Supermicro (SMCI) in networking and other areas. Broadcom is also developing ASIC AI chips in partnership with Google and Meta Platforms.
In its Q2 2024 investor letter, Aristotle Atlantic Large Cap Growth Strategy said the following about Broadcom Inc. (NASDAQ:AVGO):
Broadcom Inc. (NASDAQ:AVGO) is a global technology leader that designs, develops and supplies a broad range of semiconductor and infrastructure software solutions. The company strategically focuses its research and development resources to address niche opportunities in target markets and leverages its extensive portfolio of U.S. and foreign patents and other intellectual property to integrate multiple technologies to create system-on-chip components and software solutions that target growth opportunities. Broadcom designs products and software that deliver high performance and mission-critical functions. The company has a history of innovation in the semiconductor industry, delivering thousands of products that are used in end products such as enterprise and data center networking, home connectivity, “set-top box broadband access,” communications 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 high performance 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 well positioned to benefit from the long-term growth of data center networking driven by AI and cloud computing. The company continues to invest in research and development, which we view as a competitive advantage. Broadcom's infrastructure software business is a recurring revenue generating business model that provides customers with mission-critical mainframe support software. The recent acquisition of VMware strengthens this business strategy and accelerates the growth rate of this business unit, as VMware's product suite includes key tools for AI server upgrades. Our long-term investment thesis is supported by the success of Broadcom's strategy to maintain technology and market share leadership in mission-critical markets with high switching costs and deep profit pools.
Overall, Broadcom Inc (NASDAQ:AVGO) ranks 5th on Insider Monkey's list of “Top 10 AI Stocks Based on Latest Analyst Ratings and News.” While we acknowledge the potential of Broadcom Inc (NASDAQ:AVGO), we believe AI stocks have a better chance of delivering higher returns in a shorter time frame. If you're looking for AI stocks that are more promising than AVGO but still trade at less than 5x earnings, check out our report on the cheapest AI stocks.
Read next: Analysts see a new $25 billion “opportunity” for NVIDIA, and Jim Cramer recommends these stocks.
Disclosures: None. This article was originally published on Insider Monkey.
