Purchase of This Artificial Intelligence Giant by Billionaires on Wall Street is Predicted to Surge by Up to 50% by One Financial Expert Next Year
Today, retail investors have an abundance of information regarding public companies at their disposal. Quarterly reports keep us informed about a company's performance, while resources provide insights into others' perspectives on specific stocks. Analysts' stock price targets and hedge funds' buying and selling activities are two valuable types of information that can aid in stock research.
One such company that has recently caught the attention of analysts, hedge funds, and investors alike is Broadcom (AVGO 0.25%). Known for its extensive reach in technology, Broadcom's significant presence in the artificial intelligence (AI) sector is what has been driving its popularity.
The financial community is bullish on Broadcom's stock performance
In the third quarter, several prominent hedge funds acquired shares of Broadcom. For instance, Tiger Global Management, led by billionaire Chase Coleman, increased its stake in the company. Bridgewater Associates, led by billionaire Ray Dalio (though he only serves on its board now), nearly quadrupled its stake.
Analysts are also optimistic about the stock, with Rosenblatt setting a Street-high price target of $240 for Broadcom. This represents a 50% increase over its current price. While the average 12-month price target among the 42 analysts covering Broadcom is $193, predicting a more modest 19% gain, this still signifies a substantial upside potential that could potentially surpass market performance.
Two main factors that influence analysts' and hedge funds' views on the stock are Broadcom's AI-related products and its VMware software.
Broadcom's AI products are in high demand
Broadcom contributes to the AI space in various ways, with its ethernet switches and custom AI accelerators being the most noteworthy. The Tomahawk 5 and Jericho3-AI switches facilitate traffic for AI servers, making them essential hardware for companies building AI computing infrastructure. Sales of these products skyrocketed by 300% in the last quarter compared to the previous year. Sales of AI accelerators, which are custom-designed products tailored to an end-user's AI model setup, also saw a 250% year-over-year increase in sales. The demand for both products is expected to continue growing.
On the software side, the integration of VMware has significantly boosted Broadcom's business. Broadcom acquired VMware for $69 billion in November 2023, and its impact on the company's financials has been positive since then. VMware provides software that enables clients to create virtual desktops, maximizing a company's computing resources. While VMware's addition to Broadcom's quarterly figures has skewed its year-over-year growth metrics, the company's AI product line continues to perform well, with most other product categories struggling.
Despite the seemingly impressive year-over-year revenue growth of 47% in fiscal Q3, which ended on August 4, 2024, stripping out VMware's contribution reveals a revenue increase of only 4%. This low growth rate could seem strange, considering Broadcom's AI product line's success, but its diverse product catalog and the struggles faced by other product areas not related to AI can explain this phenomenon.
Investor sentiment towards Broadcom's stock remains positive, with the share price steadily climbing throughout 2024. Broadcom's current valuation is 26 times forward earnings, placing it in a similar valuation range as Meta Platforms (NASDAQ: META), Taiwan Semiconductor (NYSE: TSM), and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL).
Investors must consider whether Broadcom offers a better investment opportunity than these other AI-focused companies. While I personally believe that these other companies offer better value and growth potential, this could change if Broadcom's AI product line continues to perform strongly and the rest of its business experiences an upswing.
Broadcom appears to be a promising AI investment, but its valuation is already in line with that of other companies I have invested in. Therefore, I will likely pass on the stock unless there are drastic changes in the company's performance.
Given the bullish sentiment towards Broadcom's stock performance, many investors are looking for opportunities in finance and investing. The financial community's optimism is reflected in the actions of hedge funds, such as Tiger Global Management's increased stake in Broadcom and Bridgewater Associates' nearly quadrupled stake. Analysts also agree, with Rosenblatt setting a high price target of $240, representing a 50% increase, and an average 12-month price target of $193 among 42 analysts. The high demand for Broadcom's AI products, like its ethernet switches and custom AI accelerators, is a significant factor driving this investor interest.
