We recently published a list of Jim Cramer’s Bold Predictions About These 9 Semiconductor Stocks. In this article, we are going to take a look at where Broadcom Inc. (NASDAQ:AVGO) stands against other semiconductor stocks that Jim Cramer has boldly predicted.
As 2024 comes to a close, the semiconductor industry has seen its fair share of fireworks. While firms like Wall Street’s favorite AI GPU stock are the ones that have caught investor attention, not all chip stocks have performed well. Just like the economy, where firms exposed to AI-driven data center spending have performed well, semiconductor stocks that are geared towards AI have also seen their fortunes soar while others haven’t been so lucky.
As an example, consider the stock price performance of two of the most well-known semiconductor stocks in the world. The first ranks 3rd on our list of Jim Cramer’s Bold Predictions About These 15 AI Stocks while the second ranks 12th. The first stock is the GPU stock we mentioned above while the second is the world’s largest integrated chip manufacturer. An integrated chip manufacturer, for those out of the loop, is a firm capable of designing and manufacturing its chips. Looking at their share price performance, the first stock has gained 184% year-to-date while the second is down by 57.5% over the same time period.
So why does their performance lie on the opposite ends of the spectrum? Well, the first company has sustained investor optimism because its products are market leaders in terms of computing AI workloads. Even so, while the shares are up by 184%, they had already gained 173% by mid-October. Since then, the stock has added just 4% as Wall Street is in wait-and-watch mode regarding the demand for AI services among businesses and users and the GPU supply chain of the company.
However, while the GPU maker hasn’t impressed in terms of returns in the final quarter, the integrated chip manufacturer has stunned with its fall from grace. From the start of the year to July-end, its shares had lost 36%. While that was bad on its own, the firm’s second-quarter earnings report led to nothing but a bloodbath. It caused a whopping 34.6% share price drop over the next couple of days. So what happened? Well, starting from the financial figures, its Q2 earnings per share of two cents fell way short of consensus analyst estimates of $10 cents. The revenue wasn’t great either, as while the firm earned $12.83 in the second quarter, analysts had expected it to bring in $12.94 billion.
But an earnings and revenue miss rarely wipes a third of a stock’s value. Along with the dismal financial results, the firm also revealed that not only would it cut 15% of its workforce, but it would also stop paying a dividend in Q4. Naturally, investors weren’t impressed and they weren’t optimistic about the firm’s future trajectory either. Since the earnings, the stock is up by 2.5% though as its CEO’s sudden exit and whispers of a divestiture of the costly chip manufacturing business to ease costs seemed to have piqued investor attention.
The start of December has also seen another interesting, albeit long-term, development for the semiconductor industry. The semiconductors, or chips, that currently power our computers and phones rely on classical computing which uses bits for computing. Quantum computing, on the other hand, expands the processing power significantly over classical computing by relying on qubits instead. In December, Google revealed its Willow quantum computing chip which it claims is capable of processing a problem that would take a classical supercomputer 10 septillion years in less than five minutes. More importantly, Google claimed to have manufactured the chip itself – a development that broadens the number of companies capable of manufacturing advanced processors.
The announcement injected fresh life into quantum computing stocks which have gained as much as 281% since Willow was revealed. This is despite the fact that no semiconductor foundry is capable of manufacturing quantum computing chips at scale. And why would they? After all, the use cases for quantum computers are limited as well, as opposed to the billions of chips used in personal computing applications.
For his part, Cramer isn’t a fan of quantum computing either. Commenting on the negative share price movements following the Federal Reserve’s well-televised conference earlier this month, he likened the sentiment in quantum computing to a hype bubble. The market won’t recover quickly according to Cramer as “rampant Bitcoin speculation, after speculation in nuclear power, after speculation in quantum computing” pushed stocks higher than their fundamentals would justify. Further commenting on the industry, he stated:
“How are these companies going to, how is D-Wave Quantum by the way, how is that going to quantum? When we don’t even know what quantum is? It’s a nonfungible token, right? Cause you know what a fungible token was?”
Our Methodology
To compile our list of Jim Cramer’s bold predictions about semiconductor stocks, we scanned the stocks he mentioned in Mad Money and Squawk on the Street as far back as in August. Then, we picked out semiconductor stocks and ranked them by the number of hedge funds that had bought the shares in Q3 2024.
For these stocks, we also mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds invest in? 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 In Q3 2024: 128
Date of Cramer’s Comments: 09-06-24
Performance Since Then: 76.5%
Broadcom Inc. (NASDAQ:AVGO) is a diversified semiconductor company with a presence in the semiconductor and software markets. Its semiconductor business provides modems, embedded processors, ASICs, and other chips. A tight market for NVIDIA’s GPUs and the firm’s chip design strengths have led to investor hopes of Broadcom Inc (NASDAQ:AVGO) capturing the AI market through its custom products. These expectations came to the forefront in December when Broadcom Inc (NASDAQ:AVGO)’s shares surged by a whopping 38% over the next two days after the firm’s fiscal fourth-quarter results saw it project a $60 billion to $90 billion AI revenue opportunity in 2027. Here’s what Cramer said in September:
“Broadcom gave us results that showed a tad bit of weakness in artificial intelligence orders, and the pin action took down the whole darn cohort. I don’t believe AI is a bubble, but these stocks are still up a great deal, especially in August. And September tends to bring out sellers when you get just in-line numbers. That’s what we got from Broadcom. It was in line, it wasn’t a shortfall.
“Ben Reitzes, who I quote a lot because he’s really smart, said Broadcom was hurt by some choppiness in Google orders. That wasn’t clear from the conference call, but it makes a lot of sense. That business will bounce back.
“The issue here isn’t Broadcom’s reaction, which took down most of the tech. No, it’s the overreaction to Broadcom that seemed to cascade into finance and then anything cyclical. The pain was palpable. To me, this is all about the zeitgeist, not the facts, because so many companies are doing well despite the slowing economy. However, you can’t waste time arguing with the sellers who suddenly want nothing whatsoever to do with this market. Nothing’s going to stop them from taking profits out of fear.”
Overall, AVGO ranks 3rd on our list of semiconductor stocks that Jim Cramer has boldly predicted. 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 time frame. 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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