We recently compiled a list of the Best Future Stocks For The Long-Term. In this article, we will look at where Broadcom Inc. (NASDAQ:AVGO) ranks among the best future stocks for the long term.
A Soft Landing is More than Likely
The Fed plans to initiate rate cuts for the first time in over four years and investors do not know what to expect of the financial markets moving forward. On September 17, Stephen Juneau, Bank of America US economist, appeared in an interview on Yahoo Finance to discuss the impact of an unexpected growth in consumer spending on the economy.
Juneau reiterated that economic data is highly volatile and that the retail data released this morning will not impact the Fed’s rate cut decision tomorrow, and he expects the Fed to stick to a 25-basis point cut. As for consumer behavior, the economy is finally moving toward normalization and the consumer’s basket of goods reflects that. These indications, the increasing labor demand, and a stable investment outlook hint that a hard landing is highly unlikely.
The Outlook of Investing Amid Rate Cuts
On September 17, Eric Freedman, US Bank Asset Management Group CIO, appeared in an interview on Yahoo Finance to discuss the rate cut and how investors view investing. Freedman said that the rate cut depends on the Fed’s path, therefore an accurate prediction may not be possible at the moment.
Freedman talks about investment from an individual perspective, suggesting investors must move out of the front end of the yield curve. He then pointed to sectors that are currently providing value to investors, including the consumer discretionary sector, some parts of the energy sector, and tech, especially because investments in the sector are predicted to grow rapidly, well into 2025.
He then discussed what companies need to do to attract investors. Freedman emphasized the need for strong financials and suggested that companies should engage in buybacks or consider increasing dividends. The perfect combination of stocks, according to Freedman, includes companies that are returning cash and seeing strong organic growth.
The future of the economy and the financial market is quite unpredictable. However, some stocks can influence the market not just now, but also in the future. With that, let’s take a look at the best future stocks for the long term.
Our Methodology
To come up with the 10 best future stocks for the long term we looked up growth stocks in the AI, Cloud, Cybersecurity, Biotechnology, Electric Vehicle, and Renewable Energy industries. We then ranked the stocks with the highest number of hedge funds as of Q2 2024.
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 Holders: 130
Broadcom Inc. (NASDAQ:AVGO) is a semiconductor manufacturing company that designs, develops, and supplies semiconductor and software infrastructure products. Some of its products include cable modems, networking processors, and storage adapters.
Broadcom Inc. (NASDAQ:AVGO) is one of the most prominent future stocks and we say that because in 2024, the company extended its AI workload to deliver the industry’s first switch platform for scalable AI systems. The company also launched a new technology, Retimers, that helps computers process huge amounts of data for AI tasks. Both these innovations are breakthroughs for AI infrastructure. The company’s futuristic approach is not recent. Previously, in 2023, Broadcom Inc. (NASDAQ:AVGO) launched the industry’s first highest-performance fabric for AI networks and the industry’s first switch with an on-chip neural network.
In the fiscal third quarter of 2024, the company’s revenue was $13.1 billion, up by 47% year-over-year, driven by the growing demand for AI and its cloud platform, VMware. In the fourth quarter of 2024, Broadcom expects revenue from AI to grow by 10% sequentially reaching $3.5 billion, bringing the full-year total to $12 billion. Overall, VMware, its proprietary cloud platform logged $3.8 billion in revenue during FQ3 2024. Last month, Broadcom Inc. (NASDAQ:AVGO) unveiled additions to its cloud platform making it a unified and integrated private cloud platform.
Aristotle Atlantic Partners mentioned Broadcom Inc. (NASDAQ:AVGO) in its Q2 2024 investor letter. Here is what the firm said:
“Broadcom 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, AVGO ranks 3rd on our list of the best future stocks for the long-term. While we acknowledge the potential of AVGO as an investment, 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 was originally published on Insider Monkey.