We recently compiled a list of the 10 Tech Stocks to Monitor Amid Market Volatility According to Bernstein Analyst. In this article, we are going to take a look at where Broadcom Inc. (NASDAQ:AVGO) stands against the other tech stocks to monitor amid market volatility.
In the past few weeks, a major selloff in the technology sector, mostly over concerns about return on investments amid ballooning capital expenditures on artificial intelligence (AI), has hit the stock market, sending valuations crashing and igniting fears of an AI bubble at the marketplace that might be about to burst. However, Stacy Rasgon, who has covered semiconductor stocks, one of the most prominent sectors in the AI world, for over fifteen years, has advised investors to stay the course, terming fears of a bubble as overblown. Rasgon claims that even though chances of an air pocket, used to refer to stock plunges, are 100%, he is confident the time for them is not now. He pointed to the very real and massive AI data center build as an example, predicting it would go on for a few years, helping push AI stocks higher.
In a recent interview with IBD, Rasgon zeroed in on semi stocks, highlighting that they had been massively outperforming, mostly on AI. However, he cautioned investors about potential upside to these firms outside of AI, like in the PCs or smartphones business, noting that even though they might be better than last year, it was evident they would not be growing at a rapid pace anytime soon. He also added that outside of AI, data center, server CPU, and networking demand remained weak. Bernstein, the investment advisory where Rasgon practices his trade, recently revealed a basket of prominent stocks in the tech, media, and communications domain that had upside potential of almost 26% to price targets by the advisory.
This list comes amid worries over the state of the job market and consumer spending in the United States, as well as a potential artificial intelligence air pocket. Bernstein analysts have advised investors to put their money to work in this period of heightened market volatility. Several AI-related tech names are trading at huge discounts due to the selloff, with some of these names discussed in detail below. More information about these firms can be found by accessing 33 Most Important AI Companies You Should Pay Attention To and 17 Trending AI Stocks According to Latest News And Analyst Ratings.
Our Methodology
For this article, we selected companies who operate in the tech domain and have been on the radar of Wall Street analysts. An important investor note by investment bank Bernstein formed the basis for this list. These stocks are also popular among hedge funds. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. 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).
A technician working at a magnified microscope, developing a new integrated circuit.
Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Holders: 130
Broadcom Inc. (NASDAQ:AVGO) supplies semiconductor infrastructure software solutions. The firm is expected to benefit from increased AI capital expenditures by hyperscalers in the coming months, leading to strong revenue growth and margin expansion, and suggesting strong upside potential for the shares. Senior Bernstein analyst Stacy Rasgon claims that the company has the second best story in the space after NVIDIA, mostly due to chip and networking product sales to big tech firms. In a recent appearance on CNBC, the analyst said that the AI business had been good enough this year to cover up some nastiness in the core business of the firm, which was general networking. He added that the AI guidance of the firm seemed conservative and recent acquisition activity, like the VMware purchase, had upside to it. He underlined that the firm had the highest margins and highest free cash flow in the chip space.
Bernstein has an Outperform rating on Broadcom Inc. (NASDAQ:AVGO) stock with a price target of $195. In a recent investor note, the advisory noted that the acquisition of VMware was projected to be a significant growth driver for the chip firm in the next year, with a $4 billion revenue run rate expected in the coming quarters, either by the fourth quarter or the first quarter of the next fiscal year. This implied that revenues could surpass $16 billion next year even as gross margins remain stable, buoyed by the growth of software sales.
Overall AVGO ranks 4th on our list of the tech stocks to monitor amid market volatility. While we acknowledge the potential of AVGO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AVGO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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