Investing in companies with fundamentally strong growth and sustainable competitive advantages can be a smart long-term strategy for savvy investors. artificial intelligence With artificial intelligence emerging as one of the hottest investment trends, it’s no surprise that billionaires are also actively seeking out high-quality AI-powered stocks.
Broadcom (NASDAQ: AVGO) and apple (NASDAQ:AAPL) These stocks seem to fit that bill and have been bought by many billionaire investors and mutual funds. Here’s why individual investors should follow suit and consider buying at least a small stake in these stocks now.
Broadcom
Shares of Broadcom, a company that designs semiconductor chips and runs enterprise software, are up 25% in 2024. While 10 for 1 The July 2024 stock split played a major role in improving investor sentiment, with several billionaire investors identifying growth potential in the stock in the second quarter of 2024. Notable among them were Ken Griffin’s Citadel Advisors, the late Jim Simons’ Renaissance Technologies, Ken Fisher’s Fisher Asset Management, Israel Englander’s Millennium Management, Jerome Dodson’s Parnassus Investments Holdings, and D.E. Shaw’s David Shaw.
The growing adoption of sophisticated AI technologies has emerged as one of Broadcom’s key growth drivers. Broadcom accounts for nearly 80% of the data center networking chip market share. In the third quarter of fiscal 2024 (ended August 4), the company’s networking segment revenues rose 43% year over year to $4 billion. The strong performance was driven by strong demand from enterprise giants for AI-optimized networking solutions and custom AI accelerators.
In the third quarter, sales of Ethernet switching products such as the Tomahawk 5 and Jericho3-AI increased more than four-fold year-over-year. Sales of dedicated AI accelerators, which can be more efficient for specific tasks than general-purpose GPUs, also increased 3.5x year-over-year in the third quarter. The AI accelerator business is highly profitable, scalable, and has high barriers to entry. Accordingly, the company raised its FY24 AI revenue forecast from $11 billion to $12 billion.
The acquisition of virtualization software technology company VMware also strengthened Broadcom’s enterprise software portfolio and reduced its reliance on hardware sales. VMware contributed $3.8 billion in sales in the third quarter. The company expects VMware’s high-margin business to enable the company to achieve an adjusted EBITDA margin of approximately 64% by the end of fiscal 2024.
Broadcom’s stock price fell about 10% in late morning trading on Sept. 6, the day after it reported third-quarter results. Although the company beat analysts’ estimates for revenue and earnings, the weaker-than-expected fourth-quarter outlook appeared to have weighed on investor sentiment. Still, the reaction seems overblown for a stock like Broadcom with strong fundamentals and strong growth prospects, and it’s likely to be short-lived.
Given the many positives and the current decline in stock prices, Broadcom appears to be a great stock to buy in September 2024.
apple
Although Warren Buffett’s investment company Berkshire Hathaway Even though Apple Inc. cut its stake in the tech giant by about 50% in the second quarter of 2024, several other billionaire investors were also bullish on the stock. Notable among them are Fisher’s Fisher Asset Management, Englander’s Millennium Management, Jeremy Grantham’s Grantham Mayo Van Otterloo, Griffin’s Citadel Advisors, Andreas Halvorsen’s Viking Global Investors, and Sander Gerber’s Hudson Bay Capital.
Apple Inc. reported impressive results for its fiscal third quarter of 2024 (ended June 29), with revenue and earnings beating analysts’ average estimates. The company’s ecosystem of products and services saw strong demand despite ongoing macroeconomic pressures.
Historically, the iPhone has been Apple’s main growth driver. Although iPhone sales fell 1% year-over-year to $39.3 billion in the third quarter, a recent Kantar survey showed that iPhone models are the best-selling smartphones in several key markets, including the United States, urban China, the United Kingdom, Germany, Australia and Japan.
Apple recently launched its generative AI technology, Apple Intelligence, which will be integrated into its entire product line. The company expects Apple Intelligence to drive more customers to upgrade to newer iPhones capable of running these AI services. The company is preparing to launch iOS 18 to make the iPhone even more personalized, intelligent, and capable. Coupled with the iPhone install base hitting an all-time high at the end of Q3, the iPhone upgrade cycle could be a major driver for Apple in the coming years.
Apple’s digital services segment also generated its highest revenue ever at $24.2 billion, up 14% year over year. The services segment is critical to securing recurring revenue streams and building a steady customer base. Services are seeing increasing customer demand, thanks to the company’s massive installed base of devices. Apple ended the third quarter with more than 1 billion paid subscriptions across its services segment, more than double what it was four years ago. With the highly profitable services segment becoming a larger part of Apple’s business, the company’s margins are well positioned to expand in future quarters.
Apple is trading at a trailing-12-month price-to-sales (P/S) ratio of 8.64 times, well above its five-year average of 6.92 times. Despite the high valuation, the stock looks attractive when compared to most other AI-powered tech companies.
It might make sense for investors to take advantage of the investment analysis of many billionaires and consider buying at least a small stake in this stock now.
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Manali Pradhan The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool recommends Broadcom. The Motley Fool has Disclosure Policy.
Billionaires are buying these two leading AI stocks Originally posted by The Motley Fool