As we previously reported, Broadcom Inc (NASDAQ: AVGO) was one of the top AI stocks on investors’ radar in our list of 10 AI Stocks on Investors’ Radar In January 2025. In this article, we will delve deeper into Broadcom’s position against other AI stocks and explore what makes it an attractive investment opportunity.
The AI Growth Story Remains Intact
According to Drew Pettit, U.S. equity strategist at Citi Research, the AI growth story is still intact moving ahead in 2025. However, Pettit believes that a lot of positive news is already ‘priced in.’ He also highlighted the key areas that can benefit this year:
‘I think the fundamental stories, at least for the pick-and-shovels names, continue. But where we think the trade is actually going to broaden out, and honestly, it has since mid-year, is into some of the users of AI. So, think about car companies that do autonomous driving or software companies putting that into their programs themselves, and even to some of the more cyclical names that, on the back end, can get some more productivity gains.’
Broadcom’s Edge Over Nvidia
King Lip, BakerAvenue Wealth Management chief strategist, recently talked to CNBC about Broadcom Inc (NASDAQ: AVGO) and its unique selling proposition:
‘I think Broadcom Inc. (NASDAQ:AVGO) is an interesting name just because it does something that Nvidia doesn’t do, which is custom AI chips for their customers. This segment is growing just as fast as Nvidia is, and the company itself actually has a lower multiple than Nvidia.’
Broadcom Inc. (NASDAQ: AVGO) continues to be a leader in the AI ASCI and networking chips market. The company has 3nm AI ASIC chip deals with Alphabet and Meta in addition to many other tech giants aiming massive spending for AI hyperscaling.
Challenges Ahead
However, the stock could face the impact of what Nvidia is facing today: too high expectations. In the latest quarterly results, Broadcom Inc (NASDAQ: AVGO) revenue was largely in line with estimates. The company has narrowly exceeded revenue expectations by less than 5% in most cases.
Some analysts suggest that Broadcom’s growth rates will moderate to below 20% CAGR starting the first quarter of 2025. In fiscal Q4, it was +50% topline growth. The market won’t be kind to the stock when the revenue growth rate slows. Broadcom has about $58 billion in net debt, which is relatively high.
Columbia Threadneedle’s Take
Columbia Threadneedle Global Technology Growth Strategy stated the following regarding Broadcom Inc. (NASDAQ: AVGO) in its Q3 2024 investor letter:
‘Similar to the earnings results for Nvidia, shares of Broadcom Inc.(NASDAQ:AVGO) initially sold off after the company reported solid earnings that fell light of elevated market expectations, but the stock did recover from its drawdown in the matter of a few weeks. With an enticing combination of custom chip offerings as well as networking assets, Broadcom remains one of the best positioned companies as part of the AI revolution.’
AVGO Ranks 7th on Our List
Overall, AVGO ranks 7th on our list of AI stocks on investors’ radar in January 2025. While we acknowledge the potential of AVGO, our conviction lies in the belief that under-the-radar AI stocks hold greater promise for delivering higher returns within a shorter time frame.
The Importance of Hedge Fund Investors
We have chosen to highlight the number of hedge fund investors in each company because our research has shown that imitating the top stock picks of the best hedge funds can outperform the market. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Conclusion
In conclusion, Broadcom Inc (NASDAQ: AVGO) is an attractive investment opportunity due to its leadership in the AI ASCI and networking chips market. However, it’s essential to keep in mind that the company may face challenges in the future, such as moderating growth rates and high net debt.
If you’re looking for a more promising AI stock with lower earnings multiples, we recommend checking out our report on the cheapest AI stock.
Disclosures
None. This article is originally published at Insider Monkey.
