Although Nvidia (NVDA) has just broken out to a record high, the artificial intelligence giant once again failed to make the latest list of new buys by the best mutual funds. In this month’s screen, which comes out Friday, these top money managers went all in on a rival AI play: Broadcom (AVGO).
And now as shares of Nvidia keep rising, Broadcom stock looks to etch a new breakout of its own.
Plus, a just-unveiled industry-first in AI networking beyond the data center promises to expand demand for Broadcom. But investors should keep in mind that both of these AI semiconductor giants share one point of caution.
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Broadcom Stock Garners Massive Demand
Showing that the AI boom keeps on rolling, top-performing funds scooped up a whopping $17.2 billion worth of Broadcom stock in the latest report. That more than doubled the $7.7 billion they invested in fellow AI leader Palantir Technologies (PLTR), which came in second place.
In other signs of demand, Broadcom earns a 1.2 up/down volume ratio and a B- Accumulation/Distribution Rating.
After bolting out to an all-time high on earnings, Palantir has spiked to a 2.4 up/down volume ratio and A Accumulation/Distribution Rating. But an impressive 310 funds with an A+ rating from IBD own shares of Broadcom stock. Only 22 such funds have a position in Palantir.
By comparison, Nvidia has 1.3 up/down volume ratio and a D- Accumulation/Distribution Rating. Topping Broadcom, 370 A+ funds own Nvidia.
With Nvidia AWOL again, Meta Platforms (META) was the only Magnificent Seven member to make this month’s screen. Meta stock also made the list in October.
Growth Accelerates
Both Broadcom and Nvidia hail from the fabless semiconductor group. Nvidia holds a slight lead among the industry leaders with a 97 Composite Rating. Broadcom earns a 96 rating.
Nvidia faces the most immediate test with earnings due Nov. 20. But Broadcom is not far behind with its next report scheduled for Dec. 5.
Analysts expect Broadcom to build on its recent growth. For the third quarter of fiscal 2024, ended on Aug. 4, Broadcom generated 47% revenue growth to $13.1 billion and an earnings increase of 18% to $1.24 per share.
Analysts see that earnings acceleration continuing in each of the next three reports. When the company unveils fiscal Q4 numbers next month, Wall Street forecasts 26% earnings growth to $1.39 per share
Industry-First For Robust AI Networking
As a leading chip designer, Broadcom serves a range of critical markets, including cloud, data center, networking, broadband, wireless, storage and enterprise software.
On Tuesday, Broadcom unveiled VeloRAIN, the latest addition to its VeloCloud portfolio. VeloRAIN aims to accelerate an enterprise’s readiness to further connect and support AI and non-AI workloads. Calling it an industry-first for AI networking beyond the data center, it ties in with Broadcom’s push for vertical industry adoption of generative AI.
The chip designer believes GenAI can help enterprises drive gains in productivity while reducing the cost of automating manual-intensive processes.
Broadcom Stock And Nvidia: A Word Of Caution
Since retreating from an earlier 185.16 buy point in a consolidation pattern, Broadcom stock is once again targeting that entry. After bouncing off the 50-day line on Election Day, the stock jumped back above its 21-day exponential moving average on Wednesday.
Broadcom closed the session 3% shy of a return to buy range.
But investors should note that, as with Nvidia, Broadcom’s chart pattern is late-stage. Such bases can generate good gains, especially as the Nasdaq and tech stocks rally. But they entail more risk. By definition, a stock has already made a substantial move by the time third-, fourth- and even later-stage bases form.
Nvidia’s breakout last month came from a fourth-stage pattern.
Also note that both Broadcom and Nvidia have earnings ahead, adding an extra call for caution.
Follow Matthew Galgani on X (formerly Twitter) at @IBD_MGalgani.
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