We recently published a list of Top 10 Stocks Analysts are Watching as AI Selloff Deepens. In this article, we are going to take a look at where Broadcom Inc (NASDAQ:AVGO) stands against other top stocks analysts are watching as AI selloff deepens.

Major AI stocks are struggling to gain traction as investors rethink their strategies amid concerns of a slowdown in spending. Even top tech bulls are starting to use the word “bubble” for the AI trade. Gene Munster, Deepwater Asset Management managing partner, said in a latest program on CNBC that he believes we still have two years of the AI bull run before the bubble bursts.

“From a high-level perspective, I always return to the fundamentals as a tech investor. The fundamentals of these companies remain strong. I predict we have two good bullish years ahead before a spectacular bubble burst. When I see this, it shakes my confidence, but if I stay focused on the fundamentals, I still believe this trade will play out.”

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For this article, we picked 10 stocks analysts are currently talking about. With each company we have mentioned the number of hedge fund investors. 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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

A technician working at a magnified microscope, developing a new integrated circuit.

Broadcom Inc (NASDAQ:AVGO)

Number of Hedge Funds Investors: 128

Stephanie Link, CIO at Hightower, said in a latest program on CNBC that she likes Broadcom Inc (NASDAQ:AVGO) for the long term and started piling into the stock.

“I do believe in the long-term story very much. It went from 34 times forward estimates, which got rich, to now 28 times. I was buying it a couple of years ago at 14 times, and we’ve talked about the multiple expansion—but it deserves a higher multiple because they are going to see something like a $60 to $90 billion total addressable market in their AI business, with two new ASIC customers coming in the next couple of years. I think that’s going to be very positive. I love the VMware acquisition, what it’s doing for their recurring revenue and margin. Their non-AI business has actually been horrible, and I expect it to be down 15% in the quarter, but I do think you’re in the process of troughing. So, I like the valuation, the pullback in the stock, and I just saw it as an opportunity.”

Broadcom threw it out of the park with its latest quarterly results. The most important part of the report? The company expects strong AI semiconductor sales growth to continue. It sees AI semiconductor revenue of about $4.4 billion in fiscal Q2, which would be a 42% year-over-year growth.  Broadcom reported $6 billion in free cash flow for the quarter. Its software business gross margin came in at about 90%. But what’s Broadcom’s moat? It makes ASIC, chips designed for specific applications and tasks. As major companies look for custom chips to break Nvidia’s monopoly and lower costs, Broadcom is positioned well to thrive. Many top AI spenders are teaming up with Broadcom to develop these chips, which are expected to be high-margin, high-volume products, potentially driving substantial growth in both revenue and profits.

Bell Global Equities Fund stated the following regarding Broadcom Inc. (NASDAQ:AVGO) in its Q4 2024 investor letter:

“During December we introduced two new holdings to the portfolio and exited two names. The first addition was Broadcom Inc. (NASDAQ:AVGO), a leading global player in the semiconductor and software industry. We established the position early in December as we saw good potential for earnings upgrades going into 2025. Broadcom’s fundamentals continue to improve and there are many opportunities for them to continue growing double-digit revenue growth and faster profit acceleration. Broadcom has built their industry leading positions through both organic investment and strategic acquisitions. They are also a key player in the booming AI market where they develop custom chips used in data centres which are tailored to specific customer needs and networking infrastructure. Their recent acquisition of VMWare is another good example of how Broadcom can expand their opportunity set into enterprise software and garner strong pricing power from their existing customer base. This adds to their software footprint in mainframe, through CA Technologies, and in cybersecurity following their Symantec acquisition. The strength of their franchise is reflected in the high margins that they earn, which helps them generate a free cashflow margin near 40%. The strong results in mid-December reinforced the strength of the business and we see continued upside for this holding.”

Overall, AVGO ranks 4th on our list of top stocks analysts are watching as AI selloff deepens. While we acknowledge the potential of AVGO as an investment, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. 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.