Retail investors today have access to a large amount of information about public companies. Not only do we get quarterly reports to update us on how companies are doing, but there are also resources that show us what others’ opinions are on any given stock. Two of the more useful types of information are analysts’ stock price targets and the reports that show what assets hedge funds have been buying and selling.
Using those in tandem while you’re researching stocks can help you gauge whether or not your views about a company are in the ballpark of the general consensus. One stock that has recently caught my eye — as well as the eyes of analysts and hedge funds — is Broadcom (NASDAQ: AVGO). The giant company has a wide reach in tech, but its significant footprint in the artificial intelligence (AI) space is what has been making it a hot stock.
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In the third quarter, some prominent hedge fund managers bought shares of Broadcom. For example, Tiger Global Management (led by billionaire Chase Coleman) increased its stake in Broadcom. Bridgewater Associates, which was founded by billionaire Ray Dalio (though he only sits on its board now) nearly quadrupled its stake.
Wall Street analysts are optimistic about the stock too. Rosenblatt put a Street-high price target of $240 on it –about 50% higher than its current price. The average 12-month price target among the 42 analysts covering Broadcom is $193, predicting a more modest 19% gain. But that’s still a strong performance that could easily beat the market.
Two primary factors influencing hedge funds’ and analysts’ views on the stock are the company’s AI-related products and its VMware software.
Broadcom has its fingers in the AI game in multiple ways, but the most prominent are its ethernet switches and custom AI accelerators. Its Tomahawk 5 and Jericho3-AI switches direct traffic in AI servers, and are critical hardware for any company building out computing infrastructure upon which to train AI models. Demand for these products was off the charts last quarter, with sales increasing by 300% year over year. Sales of AI accelerators — custom products designed specifically for an end-user to set up AI models in a certain way — increased by 250% year over year. Demand for both of these products is expected to increase.
On the software side, the integration of VMware has greatly boosted Broadcom’s business. Broadcom purchased VMware for $69 billion in November 2023, and it has thus far proven a great acquisition. VMware provides software that allows its clients to create virtual desktops, which helps maximize a company’s computing resources. Because VMware hasn’t been part of the company for more than a year yet, its addition to the quarterly picture is skewing Broadcom’s year-over-year growth metrics.
