Billionaires are buying these two top artificial intelligence (AI) stocks

Investing in companies with strong fundamental growth with sustainable competitive advantages can be a smart long-term strategy for savvy investors. With artificial intelligence (AI) becoming a major investment trend, it’s no surprise that billionaires have also actively pursued high-quality AI-based stocks.

Broadcom (AVGO 2.79%) and Apple (AAPL 0.04%) they seem to fit the bill and have been picked up by several billionaire investors and investment funds. That’s why retail investors should follow suit and consider at least a small position in these stocks now.

Broadcom

Shares of semiconductor chip designer and enterprise software player Broadcom are up 25% in 2024. While a 10-for-1 stock split in July 2024 played a major role in improving investor sentiment, many billionaire investors they identified the growth potential of this stock secondly. Quarter 2024. Some prominent ones 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 DE Shaw’s David Shaw .

The growing adoption of complex artificial intelligence technologies has become one of Broadcom’s most important growth catalysts. Broadcom has nearly 80% of the data center network chip market. In the third quarter of fiscal 2024 (ended Aug. 4), the company’s network revenue rose 43% year over year to $4 billion. The solid performance was driven by strong demand from hyperscalers for the company’s AI-optimized networking solutions and custom AI accelerators.

In the third quarter, sales of Ethernet switching products such as Tomahawk 5 and Jericho3-AI more than quadrupled year over year. Sales of custom AI accelerators, which can be more efficient for specific tasks instead of general-purpose GPUs, grew 3.5 times year over year in the third quarter. The AI ​​accelerator business is highly profitable and scalable, and has high barriers to entry. The company later raised its AI revenue estimate for fiscal 2024 from $11 billion to $12 billion.

The acquisition of virtualization software technology player 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 the high-margin VMware business to enable the company to achieve an adjusted EBITDA margin of nearly 64% by the end of fiscal 2024.

Broadcom’s share price fell nearly 10 percent in late morning trading on Sept. 6, the day after it reported third-quarter results. Although the company beat analysts’ estimates on revenue and earnings, a weaker-than-expected forecast for the fourth quarter appears to have hurt investor sentiment. However, this reaction seems overblown for a stock like Broadcom with solid fundamentals and robust growth prospects, and will most likely be short-lived.

Given the many pros and the current share price decline, Broadcom looks like a great stock to buy in September 2024.

Apple

Although Warren Buffett’s investment company Berkshire Hathaway slashed its stake in tech titan Apple by nearly 50% in the second quarter of 2024, with many other billionaire investors piling into the stock. Some of the prominent ones 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 posted impressive results for the third fiscal quarter of 2024 (ended June 29), with revenue and earnings beating analysts’ average estimates. The company’s ecosystem of products and services saw robust demand despite ongoing macroeconomic pressures.

Historically, the iPhone has been the major growth catalyst for Apple. Although iPhone sales fell 1 percent 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 many key markets, such as the US, urban China, the UK, Germany, Australia and Japan.

Apple recently launched Apple Intelligence generative AI technology, which will be integrated into its entire product line. The company expects Apple Intelligence to prompt more customers to upgrade to newer iPhones capable of running these AI services. The company is preparing to release the iOS 18 operating system to make the iPhone more personalized, smarter and more capable. With the iPhone installed base reaching a new all-time high at the end of the third quarter, the iPhone upgrade cycle may be a major catalyst for Apple in the coming years.

Apple’s digital services segment also reported record revenue of $24.2 billion, up 14% year over year. Service business is essential in securing recurring revenue streams and building a stable customer base. The services are seeing increasing customer demand due to the company’s huge installed base of devices. Apple ended the third quarter with more than 1 billion paid subscriptions in the services segment, more than double four years ago. As the highly profitable services business becomes a bigger part of Apple’s business, the company’s margins are well positioned to expand in the coming quarters.

Apple trades at a trailing 12-month price-to-sales (P/S) ratio of 8.64 times, significantly higher than the five-year average (P/S) of 6.92 times. Despite the high valuation, the stock appears to be attractively priced compared to most other AI tech titans.

It might make sense for investors to heed some of the billionaires’ investment analysis and consider at least a small stake in this stock now.