We recently published a list of Famous Analyst Says You Should Buy the Dip on These AI Stocks. Since Broadcom Inc (NASDAQ:AVGO) ranks 5th on the list, it deserves a deeper look.

Gene Munster, managing partner at Deepwater Asset Management, said in a latest interview with CNBC that the key reason behind the latest decline in tech stocks was major companies projecting high CapEx and giving no updates on AI monetization. Munster, however, thinks AI spending is necessary for these companies to reap rewards in the future. Munster referred to a latest interview of Mark Zuckerberg in which he said if his company does not keep spending on AI it may miss the biggest opportunity in the next 10-15 years. Munster said Zuckerberg believes this AI spending “cannot slow down.”

“I am most optimistic because that CapEX number, if you’re gonna boil it down to one point, it’s gonna be higher for longer and it’s good for AI.”

Asked whether investors should stick with mega-cap AI stocks or move on to smaller companies that could benefit from this AI spending, Munster said that depends on to what degree you believe in the transformative power of AI.

“If you are in my camp.. which I think it (AI) will be more transformative than the internet, then small companies and the big companies are going to participate.”

Munster thinks the AI-led bull market could last for 3-5 years before ending in what he called a “spectacular bubble burst.”

For this article we picked the AI stocks Gene Munster and his firm Deepwater Asset Management hold, according to the disclosures on CNBC. With each stock we have mentioned the number of hedge fund investors. 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).

Broadcom Inc (NASDAQ:AVGO)

Number of Hedge Fund Investors: 115

Deepwater Asset Management has a stake in Broadcom (AVGO).

TD Cowen in a fresh note named Broadcom Inc (NASDAQ:AVGO) as one of the stocks that can benefit from the rise in AI spending. Analysts at the firm said there are “no signs” of generative AI demand abating and highlighted that Broadcom Inc (NASDAQ:AVGO) recently raised its full-year AI outlook. Broadcom expects AI-related revenue for 2024 at $11 billion.

Broadcom Inc (NASDAQ:AVGO) recently reported second-quarter results. Revenue in the quarter rose about 43% year over year. AI revenue in the period rose a whopping 280% year over year. Broadcom Inc (NASDAQ:AVGO) revenue stream is diverse and does not rely on a single source. It includes enterprise, networking, storage, data center/hyperscaler, industrial, and consumer space. For 2024 Broadcom Inc (NASDAQ:AVGO) has increased its annual revenue guidance to over $51 billion, anticipating growth of over 40%. A significant portion of this growth is expected to come from software, which would also help margins.

Broadcom Inc (NASDAQ:AVGO) Ethernet business is also strong amid partnerships with Arista Networks (ANET), while the company is also collaborating with Dell (DELL), Juniper (JNPR), and Super Micro (SMCI) in the networking business and other segments. Broadcom has also developed ASIC AI chips in partnership with Google and Meta Platforms.

Based on this strong growth and upcoming catalysts, Broadcom Inc (NASDAQ:AVGO) forward P/E of about 25 makes the stock look undervalued.

Aristotle Atlantic Large Cap Growth Strategy stated the following regarding Broadcom Inc. (NASDAQ:AVGO) in its Q2 2024 investor letter:

“Broadcom Inc. (NASDAQ:AVGO) is a global technology leader that designs, develops and supplies a broad range of semiconductor and infrastructure software solutions. The company strategically focuses its research and development resources to address niche opportunities in target markets and leverage its extensive portfolio of U.S. and other patents and other intellectual property to integrate multiple technologies and create system-on-chip component and software solutions that target growth opportunities. Broadcom designs products and software that deliver high performance and provide mission-critical functionality. The company has a history of innovation in the semiconductor industry and offers thousands of products that are used in end products such as enterprise and data center networking, home connectivity, “set-top boxes broadband access”, telecommunication equipment, smartphones and base stations, data center servers and storage systems, factory automation, power generation and alternative energy systems, and electronic displays. Broadcom differentiates itself through its high-performance design and integration capabilities and focuses on developing products for target markets where it believes it can earn attractive margins.

We view Broadcom’s semiconductor business as being very well positioned to benefit from secular growth in data center networking, which is being driven by AI and cloud computing. The company continues to invest in research and development, and we see this as a competitive advantage for the company. Broadcom’s infrastructure software business is a recurring revenue business model that provides mission-critical mainframe support software to its customer base. The recent VMware acquisition will enhance this business strategy and accelerate the growth rate of this business unit, as VMware’s product suite includes key tools for AI server upgrades. Our long-term investment thesis is supported by Broadcom’s success in its strategy of maintaining technology and market share leadership in mission-critical markets with high switching costs and deep profit pools.”

Overall, Broadcom Inc (NASDAQ:AVGO) ranks 5th on Insider Monkey’s list titled Famous Analyst Says You Should Buy the Dip on These AI Stocks. While we acknowledge the potential of Broadcom Inc (NASDAQ:AVGO), our conviction lies in the belief that 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.