We recently compiled a list of the 8 Best FAANG Stocks to Buy According to Analysts. In this article, we are going to take a look at where Broadcom Inc. (NASDAQ:AVGO) stands against the other FAANG stocks to buy according to analysts.
“We Are Just at the Beginning of the AI Buildout”
Each of the big tech stocks has revealed its plans to invest $50 to $100 billion in GPU compute, evidence that Artificial intelligence may be the biggest theme right now. On October 21, Ray Wang, Constellation Research’s principal analyst, founder, and chairman, joined CNBC’s ‘Squawk Box’ to share his stance on the tech sector, especially the Magnificent Seven, and the role of artificial intelligence.
The third quarter earnings season is upon us some of the mag seven are yet to report their quarterly results. Wang suggests artificial intelligence is just beginning to pan out and will stand as the major theme for a long while. He adds that companies, among the mega-caps, have poured hundreds of billions into AI during the first half of the year, and plan to add more during the second. He also shared that these mega-cap companies are driving demand as well.
READ ALSO: Jim Cramer’s Game Plan: 23 Stocks to Watch and 10 AI Stocks to Watch for the Rest of 2024.
While these expenditures may seem to have little to no payoff, historically investors were also worried about companies investing in the Internet. However, Wang dissects that the internet is not the same as artificial intelligence. The internet was rather open and decentralized and had many winners. AI, on the other hand, is more centralized, closed, and expensive, meaning that only a few players are going to make a mark.
Wang also shares that he owns all of the magnificent seven stocks. An interesting conjunction, highlighted by Wang, is that across search, social media, and commerce, most of the stocks in the Mag 7 have digital ads. Across all these three avenues, the next players cannot compete with the Magnificent Seven, especially in terms of revenue. On the regulatory front, he emphasized that the sector needs some relief. He adds that the tech sector needs to play out mergers and currently IPOs are lined up, explaining why everything is on hold.
FAANG is an acronym, which originally began as FANG, consisting of five major technology companies. The original term, FANG was coined by Jim Cramer in 2013 because, according to him, the four tech stocks belonged together as they functioned across similar themes of digitization and the web. FAANG today is much broader and includes technology companies that are shaping the future, which may also be categorized as the magnificent seven. That said, let’s take a look at the 8 best FAANG stocks to buy according to analysts.
Our Methodology
To come up with the 8 best FAANG stocks to buy according to analysts, we went over the NYSE FANG+ index and picked the latest holdings. We then examined the stocks and picked the ones with the highest analyst upside potential as of October 22, 2024. We also added the hedge fund sentiment of each stock as of Q2 2024. The list is in ascending order of analyst upside primarily and hedge fund holders, as of Q2 2024, secondarily.
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)
Analyst Upside as of October 22, 2024: 10.9%
Number of Hedge Fund Holders: 130
Broadcom Inc. (NASDAQ:AVGO) is a semiconductor company that designs, develops, and supplies semiconductor and infrastructure software products. Some of its products include cable modems, networking processors, and storage adapters.
2024 has been quite a feat for Broadcom Inc. (NASDAQ:AVGO). During the year, the company launched two breakthrough technologies such as the industry’s first switch platform for scalable AI systems and Retimers, facilitating the management of large datasets for AI tasks. To keep its strategy active, on October 15, Broadcom Inc. (NASDAQ:AVGO) expanded its 20-year partnership with Deutsche Telekom’s subsidiary, T-Systems. The subsidiary is now a VMware Cloud Service Provider.
On June 13, Nancy Tengler, CEO and chief investment officer of Laffer Tengler Investments, appeared in an Interview on Yahoo Finance where she shared her bullish stance on AVGO. Tengler states that AVGO is like the poor man’s NVIDIA and is part of her 12 best ideas portfolio. She adds that the company is in the sweet spot in the generative AI sector for both the hardware and software components.
As Tengler states, AVGO indeed is in a sweet spot for AI. In the fiscal 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. In addition to that, its cloud computing platform for enterprises promises a solid growth opportunity as AVGO leverages artificial intelligence.
ClearBridge Investments’ ClearBridge Large Cap Value Strategy stated the following regarding Broadcom Inc. (NASDAQ:AVGO) in its Q3 2024 investor letter:
“In IT, we bought Broadcom Inc. (NASDAQ:AVGO) as we believe the company has a long runway for growth with its custom silicon business, which should be more durable and less volatile than other components within the AI food chain. We also believe the acquisition of VMware creates another opportunity for steady, subscription-based durable growth that is still in its early innings. We believe the stock has an attractive risk/reward profile given the reasonable visibility toward mid-teens EPS growth at a low-20s P/E multiple. We made room for Broadcom by exiting Lam Research, whose shares we believed priced in a full recovery, while we grew increasingly concerned that China exposure might create an air pocket.”
Overall AVGO ranks 4th among the 8 best FAANG stocks to buy according to analysts. 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 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.