In our recent article, "10 AI Stocks on Investors’ Radar In January 2025," we explored the top AI stocks that analysts are talking about this month. In this follow-up article, we will delve into the performance of Broadcom Inc (NASDAQ:AVGO), one of the prominent players in the AI market.
The AI Growth Story Remains Intact
Drew Pettit, U.S. equity strategist at Citi Research, recently spoke on CNBC about his views on the AI growth story. According to Pettit, while the fundamental stories for "pick-and-shovels" names continue to be attractive, the trade is expected to broaden out into various user companies. These include car manufacturers working on autonomous driving and software companies incorporating AI into their programs.
Pettit also emphasized that many companies are mispriced, with good news already priced in. He has conducted "reverse DCF work" to support his claims. This analysis suggests that there are numerous opportunities for investors to capitalize on the expanding AI market.
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Broadcom Inc (AVGO): The Edge Over Nvidia
King Lip, BakerAvenue Wealth Management chief strategist, recently spoke to CNBC about his bullish views on Broadcom Inc. (NASDAQ:AVGO). According to Lip, Broadcom’s custom AI chips for its customers are a key differentiator from Nvidia, which is growing at a similar rate.
Broadcom Inc. (NASDAQ:AVGO) continues to be a leader in the AI ASIC and networking chips market. The company has secured 3nm AI ASIC chip deals with Alphabet and Meta, among other tech giants. This represents significant spending for AI hyperscaling.
Challenges Ahead
While Broadcom Inc. (NASDAQ:AVGO) has had impressive growth rates, some analysts suggest that the stock could face challenges in 2025. With revenue growth expected to moderate to below 20% CAGR starting from Q1 2025, the market may react negatively to slower growth.
Additionally, Broadcom has a relatively high net debt of $58 billion, which could impact its financials. In its latest quarterly results, the company narrowly exceeded revenue estimates by less than 5%.
Columbia Threadneedle’s View on AVGO
In its Q3 2024 investor letter, Columbia Threadneedle Global Technology Growth Strategy highlighted Broadcom Inc.’s (NASDAQ:AVGO) solid earnings and growth prospects. According to the report:
Similar to the earnings results for Nvidia, shares ofBroadcom 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’s Position on Our List
Broadcom Inc. (NASDAQ:AVGO) ranks 7th on our list of AI stocks on investors’ radar in January 2025. While we acknowledge its potential, our conviction lies in the belief that under-the-radar AI stocks hold greater promise for delivering higher returns within a shorter time frame.
If you’re looking for an AI stock with lower multiples and earnings, check out our report on the cheapest AI stock here.
Conclusion
In conclusion, Broadcom Inc. (NASDAQ:AVGO) remains a prominent player in the AI market, with its custom chips and networking assets driving growth. While challenges lie ahead, our conviction lies in the under-the-radar AI stocks that hold greater promise for delivering higher returns within a shorter time frame.
Disclosure
This article is originally published at Insider Monkey. View comments here.
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