Broadcom's AI Ascent: Billionaire Jeff Yass Shifts Focus from Nvidia

Billionaire Jeff Yass Sold 73% of Susquehanna's Stake in Nvidia and Is Piling Into This Beloved Artificial Intelligence (AI) Stock Instead | The Motley Fool

Susquehanna International's Jeff Yass sent more than 52 million shares of Nvidia to the chopping block during the second quarter in favor of Wall Street's favorite artificial intelligence (AI) networking stock. Earnings season is officially kicking into high gear. Over the span of roughly six weeks, a majority of America's most-important publicly traded companies will spill the beans to Wall Street and investors regarding their operating performance over the prior quarter. While corporate profit growth is vital to the success of a historically pricey stock market, earnings season isn't the only important data release investors would be wise to monitor. August 14 marked the filing deadline for institutional investors with at least $100 million in assets under management (AUM) to file Form 13F with the Securities and Exchange Commission. This filing provides investors with a snapshot of what Wall Street's brightest and most-successful asset managers bought and sold in the latest quarter (in this instance, the second quarter). Admittedly, 13Fs have a drawback -- they're filed up to 45 calendar days following the end to a quarter, which means they're likely providing stale information for active hedge funds. Yet in spite of this flaw, they can still offer invaluable clues as to which stocks, industries, sectors, and trends Wall Street's leading money managers are intrigued by. Aside from Berkshire Hathaway's extraordinary CEO Warren Buffett, one of the most closely followed billionaire money managers is Susquehanna International Group's co-founder and managing director, Jeff Yass. Susquehanna ended June with $537 billion in AUM and thousands of holdings, including various put and call options. However, the actions that stand out most in the June-ended quarter, based on Susquehanna's 13F, is what Yass and his team did within the artificial intelligence (AI) arena. Arguably no public company has been more responsible for lifting Wall Street's major stock indexes to new highs, or fueling the AI revolution, than Nvidia (NVDA 4.14%). Since the end of 2022, Nvidia's market cap has catapulted from $360 billion to $3.39 trillion, as of the closing bell on Oct. 18. Despite Nvidia's graphics processing units (GPUs) being the undisputed top choice by businesses overseeing generative AI solutions and training large language models, not all billionaire money managers are optimistic about its future. During the second quarter, Yass's fund jettisoned 52,497,275 shares of Nvidia's stock, which reduced its stake by 73% from the March-ended quarter. Keep in mind that Nvidia completed a historic 10-for-1 forward stock split following the close of trading on June 7, and the above share count has been adjusted for this split. While profit-taking may be a viable and relatively benign explanation behind this selling activity, there are also a few glaring headwinds that could have coerced Susquehanna's aggressive selling of Nvidia's shares in the June-ended quarter. Topping the list of possible sell-side catalysts is history. Since the advent of the internet in the mid-1990s, we've witnessed a multitude of game-changing technologies and innovations come along. While many of these next-big-thing trends have offered eye-popping addressable markets, their only certainty has been an early stage bubble-bursting event. For three decades, investors have repeatedly overestimated how quickly a new technology, innovation, or trend would be adopted and utilized in a mainstream capacity by consumers and/or businesses. When these lofty expectations are, inevitably, not met, the music stops and the bubble bursts. With most businesses lacking a clear plan to monetize their AI investments and generate a positive return, it would appear as if investors have overestimated the early stage utility of artificial intelligence. If the AI bubble bursts, Nvidia would presumably be clobbered. Regulators aren't doing Nvidia any favors, either. The U.S. has restricted exports of the company's high-powered AI-GPUs to China, which is one of Nvidia's top-dollar markets. Yass and his team might also be worried about competitive pressures weighing on Nvidia's pricing power and margins. In addition to external competitors bringing chips to market, Nvidia's four most-important customers by net sales are all developing AI-GPUs for use in their data centers. With Nvidia's AI-GPUs backlogged and substantially pricier than these in-house chips, Wall Street's AI darling could lose out on future orders. But while Susquehanna's brightest minds, including Yass, were busy dumping shares of Nvidia, they were absolutely piling into another key company in the AI arena. Despite Yass's fund adding to more than 4,600 positions during the second quarter, the one that really stands out is Susquehanna's sizable addition to its existing stake in AI networking colossus Broadcom (AVGO 0.06%). During the June-ended quarter, Yass oversaw the purchase of 2,347,500 shares of Broadcom, which increased Susquehanna's stake by 73% to 5,582,590 shares. Broadcom also completed a 10-for-1 stock split, but did so in mid-July. There's no question that artificial intelligence is a big reason Broadcom is expected to deliver 44% sales growth this year. The company's networking solutions are being relied on by businesses to connect tens of thousands of GPUs to maximize their computing capabilities and reduce tail latency. Broadcom's solutions are critical to the split-second decision-making that powers AI-driven software and systems. Although Broadcom's stock and operating performance would be susceptible to downside if the AI bubble bursts, the big difference between Nvidia and Broadcom is their revenue channels. Whereas an overwhelming majority of Nvidia's sales and recent growth are tied to its AI hardware, AI still represents a minority of Broadcom's net revenue. Broadcom's bread-and-butter profit driver has long been its ties to the global smartphone industry. It provides an assortment of wireless chips and accessories used in next-generation smartphones. With wireless carriers expanding the reach of 5G, Broadcom has benefited from a steady device replacement cycle. On top of being a notable player in smartphones, Broadcom develops optical sensors used in industrial equipment and robotics, connectivity and LED solutions for next-generation automobiles, and cybersecurity solutions, to name just a few of its other revenue channels. Building on this point, the company's management team hasn't been afraid to lean on the occasional acquisition to expand its footprint and bolster cross-selling opportunities. Broadcom's 2019 purchase of Symantec's enterprise security business opened the door to high-margin cybersecurity services, while its $69 billion buyout of cloud-based virtualization software provider VMware in November 2023 should bolster the company's private and hybrid cloud strategy. A considerably more diverse product and service portfolio for Broadcom appears to be the lure that hooked Susquehanna International's billionaire co-founder Jeff Yass.

Is Broadcom a Top Artificial Intelligence (AI) Stock to Buy Right Now? | The Motley Fool

Broadcom's product line has a far broader reach, which makes it a more diversified investment. However, diversification can also cause a company to miss out on some massive tech movements. So, is Broadcom a great AI pick? Or is its product line too widespread to benefit from this generational shift? If you look at Broadcom's product page on its website, you may get overwhelmed by the sheer number of choices it presents. It offers both hardware and software, such as cybersecurity and mainframe software, as well as connectivity products. Its biggest software product came as an acquisition when it purchased VMware. VMware provides its clients with virtual desktop services via the cloud and doesn't have much to do with AI, even if it is a useful service. VMware is also a major reason Broadcom is showing revenue growth. In third-quarter fiscal year 2024 (ended Aug. 4), Broadcom's revenue grew 47% year over year to $13 billion. However, when VMware's contribution is taken out (because VMware's results weren't included in Q3 FY 2023's results), Broadcom's revenue only rose 4% year over year. For a company being portrayed as a strong AI investment, that's pretty weak growth, considering that other AI-centric investments are growing very quickly. However, when you dig deeper, you'll find Broadcom's AI products crushing it. Broadcom's biggest AI products are its connectivity switches and the custom accelerators that Broadcom helped design, like Alphabet's tensor processing unit (TPU). Custom accelerators grew 350% year over year in Q3, and ethernet switching devices (which are used in servers to direct information flow) were up 400% year over year. That's impressive growth for those two product lines, but the positive effect is drowned out by other Broadcom business segments that aren't doing as well. Still, Wall Street expects Broadcom's growth to pick up in FY 2025, with 37 analysts projecting an average of 17.5% revenue growth. They clearly see these AI tailwinds having a greater effect next year, but does that make the stock a buy now? Broadcom's stock isn't cheap. It fetches a pretty hefty premium at nearly 38 times forward earnings. Those are pretty high expectations, and so far, Broadcom hasn't met them if you strip out VMware's effect. Broadcom is a great company with excellent products. However, because it has so many product lines, it's difficult to see the effect AI is having on the business. The market seems to believe that investors will see this effect in 2025, but that seems to be a lofty expectation, considering that AI tailwinds have been around for about a year and a half. I think investors can pick far better AI stocks than Broadcom, as many of them are growing faster and trade for a far cheaper price tag than Broadcom (like Alphabet or Meta Platforms). Broadcom may prove me wrong, but I'm not willing to take the risk, considering the price tag at which its stock is trading.

Analyst resets Broadcom stock price target, citing AI strength

Broadcom Chief Executive Hock Tan has built a reputation for dealmaking that has transformed the chipmaker into a tech industry heavyweight. His journey began in 2006 with Avago Technologies, where he kicked off a growth-by-acquisition strategy. In 2015, Avago acquired Broadcom for $37 billion and renamed itself after Broadcom, a move that not only rebranded the company but also positioned it as a big player in semiconductors. Tan's acquisition-driven approach has expanded Broadcom's footprint well beyond semiconductors, encompassing enterprise software and cybersecurity. Related: Analysts reboot Broadcom stock price target after earnings, bond sale One of Tan's defining moments came with the $5.5 billion acquisition of Brocade Communications in 2017. This gave Broadcom a foothold in networking technology, especially in data centers and storage, helping Broadcom diversify its offerings beyond its core semiconductor focus. In 2018, Tan made headlines again with the $18.9 billion acquisition of CA Technologies, Broadcom's first major move into software. In 2019, Broadcom acquired Symantec's enterprise security division for $10.7 billion. Tan's most ambitious attempt was his $117 billion bid in 2018 for Qualcomm, whose 5G technology would have been a game-changer for Broadcom. The U.S. government blocked the acquisition due to national security concerns. Tan's M&A strategy has transformed Broadcom into a diversified tech company with balanced revenue. Broadcom retains high-margin, strategic assets from acquisitions and divests lower-margin ones, enhancing both revenue streams and margins. "He runs Broadcom like an investment portfolio ... they are all independent fiefdoms," a former Broadcom employee who worked closely with Tan told Reuters. "If he has a dominant position in any market, he'll go in and raise those prices." AI will continue to drive Broadcom's growth In September, Broadcom (AVGO) reported fiscal Q3 results that beat Wall Street estimates of revenue and earnings. For the quarter ended Aug. 4, the company earned an adjusted $1.24 a share, topping the $1.20 consensus analyst forecast. Revenue of $13.07 billion surpassed the $12.97 billion expected. The company posted a net loss of $1.88 billion for the quarter due to a one-time $4.5 billion tax charge related to internal intellectual-property transfers. Broadcom stock is up more than 60% year-to-date, benefiting from artificial-intelligence demand. Tan said AI chip sales were expected to reach $12 billion in fiscal 2024, up from a prior forecast of $11 billion. Related: Analyst revamps Nvidia stock price target after investor meetings "Broadcom's third quarter results reflect continued strength in our AI semiconductor solutions and VMware," Tan said in a statement. Broadcom completed its $61 billion acquisition of cloud software company VMware last year. Broadcom works with major tech companies. It supplies Apple with wireless chips for iPhones and collaborates with Google on AI infrastructure. Analyst lifts Broadcom stock price target Mizuho Securities raised its price target on Broadcom to $220 from $190 with an outperform rating on the shares. Mizuho sees artificial intelligence, custom silicon and networking tailwinds into 2025 and 2026, thefly.com reported. "Broadcom's custom silicon business could see an opportunity of $16B or more if it wins OpenAl's chip business, starting in the second half of 2025 or 2026," Mizuho analyst Vijay Rakesh said, saying that the custom silicon market is heading toward a $56 billion valuation. More AI Stocks: Rakesh said that China's push for its own language models and AI chips amid export restrictions, along with potential Amazon and Google custom silicon projects, could benefit Broadcom. The analyst added that Broadcom and Nvidia remain dominant in graphics-processing-unit and custom silicon, while Arm and Micron are well-positioned in silicon IP and high-bandwidth-memory markets. At last check Broadcom stock traded off 3.7% at $175.65. Related: Veteran fund manager sees world of pain coming for stocks

Why Stock-Split and Artificial Intelligence (AI) Stock Broadcom Rallied on Thursday | The Motley Fool

The catalyst that sent the artificial intelligence (AI) specialist higher was the robust results delivered by one of the pivotal players in the AI space. For the third quarter, Taiwan Semiconductor Manufacturing Co., also called TSMC, generated revenue that jumped 39% year over year to 759.7 billion New Taiwan dollars (roughly $23.5 billion), an increase of 36% in U.S. dollars. This fueled earnings per share (EPS) that surged 54% to NT$12.54 (or $1.94 per ADR). The results were stronger than many had expected. For context, analysts' consensus estimates forecast revenue of $23.1 billion and EPS of $1.80, so TSMC easily surpassed expectations. Management pointed to strong demand for chips used for AI and smartphones as driving the results. The company is also expecting this demand to continue, guiding for strong growth in the fourth quarter. This came in stark contrast to lithography equipment provider ASML, which reported earlier this week. While the results were generally better than expected, the company dialed back its forecast for 2025, which sent skittish investors scurrying for the exits. Broadcom makes many of the ancillary products that support data centers, which are the key repositories of AI technology. Strong results and solid stock price gains led the company to execute a 10-for-1 stock split, which was completed in July. Broadcom executives have reported continued strong demand for AI networking and custom AI accelerators, which they expect will continue for the foreseeable future. In recent months, there have been concerns about a potential slowdown in the adoption of AI, with some investors taking a step back to see if demand continues to hold up. Investors took TSMC's robust results as evidence that demand for AI continues unabated. Broadcom is currently trading at 160 times earnings, which might seem egregious, but it's also misleading. Wall Street expects the company to generate EPS of $6.15 in 2025, which works out to 28 times next year's earnings. That's an attractive price to pay for a company that provides critical infrastructure for the AI revolution.

Is Broadcom Stock Going to $220 on the Heels of Its 10-for-1 Stock Split? 1 Wall Street Analyst Thinks So | The Motley Fool

Wall Street analysts are boosting their price targets on Broadcom in the wake of its high-profile stock split and robust results. Interest in artificial intelligence (AI) has mushroomed over the past couple of years, and the trend has vast implications for the entire technology sector. Broadcom (AVGO 0.46%) is a particularly important player in the space, as its semiconductors and data center technology play crucial roles in the AI ecosystem. That position has propelled the company's market cap upward by more than 100% over the past year, and prompted it to implement a high-profile 10-for-1 stock split. In the wake of the company's better-than-expected fiscal third-quarter results last month, Wall Street is getting more bullish, resulting in a host of higher price targets. One of the more recent target hikes is particularly intriguing. Mizuho Securities analyst Vijay Rakesh maintained his outperform (buy) rating on Broadcom stock while increasing his price target to $220. That would amount to a gain of 21% over the coming 12 to 18 months from the stock's closing price on Friday. Rakesh believes that the company's AI opportunity isn't fully baked into the current stock price. More specifically, Broadcom's custom silicon business -- which features application-specific integrated circuits (ASICs) -- allows its customers to create differentiated solutions to meet their specific needs. The analyst believes that opportunity could be worth $16 billion or more annually to Broadcom. Overall, the market for ASICs is expected to top $56 billion in the coming years, making it a large and growing opportunity. I think the analyst has clearly done his homework. In its fiscal 2024 third quarter (which ended Aug. 4), Broadcom's revenue grew 47% year over year, thanks to strong contributions from the company's AI chip solutions, AI data center networking products, and custom accelerators. Broadcom stock currently trades for 37 times forward earnings. While that might seem like a lofty valuation at first glance, it's an attractive price for a stock that had gained 2,530% over the past decade.

Analyst raises Broadcom stock price target on AI custom ASIC collaboration with OpenAI, outperform rating maintained By Investing.com

On Monday, Mizuho Securities adjusted its outlook for Broadcom Limited (NASDAQ:AVGO), raising its price target to $220 from the previous $190 while maintaining an Outperform rating. The upward revision reflects the potential revenue from Broadcom's involvement with OpenAI's custom AI chips. Analysts at Mizuho see a significant opportunity for Broadcom in the second half of 2025 through 2026, as it is expected to launch a custom AI chip in partnership with OpenAI, leveraging TSMC's advanced 2/3nm process technology, with a second-generation chip on the horizon for 2026-2027. According to Mizuho's analysis, this partnership could unlock a more than $16 billion opportunity for Broadcom, assuming around a 10% market share in search queries and an estimated cost of $0.04 per query. The firm's evaluation indicates that Broadcom is well-positioned in the accelerator market, ranking second behind Nvidia (NASDAQ:NVDA), and is poised to benefit from its robust product offerings that emphasize power efficiency, scalability, and optical engine integration. Mizuho's revised revenue and EPS estimates for Broadcom remain at $14.0 billion and $1.37 respectively for the current quarter, matching consensus estimates. However, forecasts for fiscal year 2025 have been increased from $60.5 billion in revenue and $6.11 EPS to $61.3 billion and $6.27 EPS, slightly above consensus. For fiscal year 2026, projections have been raised from $66.8 billion in revenue and $6.86 EPS to $68.6 billion and $7.31 EPS. The new price target of $220 reflects a 35 times multiple of the anticipated fiscal year 2025 earnings per share, aligning with the expanded multiples seen in the semiconductor sector. Broadcom's gross margins (GM) and operating margins (OM) are highlighted as industry-leading at 77% and 61% respectively. The optimism also stems from the expected growth in AI revenue, which is projected to increase at a compound annual growth rate (CAGR) of over 70% from fiscal years 2023 to 2026. Broadcom's strong market position and growth potential highlighted by Mizuho Securities are further supported by recent data from InvestingPro. The company's revenue growth of 32.04% over the last twelve months and a remarkable 47.27% quarterly growth underscore its robust performance, aligning with Mizuho's positive outlook. InvestingPro Tips reveal that Broadcom has raised its dividend for 14 consecutive years, demonstrating a commitment to shareholder value that complements its growth strategy. This is particularly noteworthy given the company's involvement in cutting-edge AI chip development. The stock's performance has been exceptional, with a 108.65% total return over the past year, reflecting investor confidence in Broadcom's strategic direction and growth prospects. This aligns well with Mizuho's increased price target and the anticipated revenue boost from AI initiatives. For investors seeking a deeper understanding of Broadcom's potential, InvestingPro offers 16 additional tips, providing a comprehensive view of the company's financial health and market position.