AVGO vs. SMCI: Which AI Stock Is the Best Buy Now?

AI and semiconductor trading has been under a lot of pressure this summer. And while some of the names that felt the chill have since recovered, others are still double-digit percentage points off their previous peaks. With every big foot down, it seems doubtful that such more battered names will return to new heights in the near future.

In this piece, we’ll check out two very different stocks that have since taken different trajectories into the fall season.

Key points about this article

• AVGO and SMCI are two different AI stocks growth investors should watch in October.
• It’s hard to imagine the AI ​​boom slowing down anytime soon. The recent volatility in AI stocks could produce excellent entry points for investors.
• If you’re looking for action with huge potential, be sure to grab our free copy brand new “Next NVIDIA” report.. It has a software stock where we are sure it has 10x potential.

Broadcom

Broadcom (NASDAQ:AVGO) is a semiconductor that some might see as the potential next big AI play, given what it stands to gain from the expansion of the AI ​​boom, not to mention that it’s also been a top performance in recent years, with the share having more than doubled (107%) in the last year alone.

With AVGO shares just 4% away from revisiting new all-time highs, it’s not hard to imagine investors feeling a lot better about the $806 billion semi-giant as it chases the capitalization club 1 trillion dollar market. If the AI ​​trade tries to make up for lost time and warm up after a rather chilly summer, Broadcom could very well be valued north of $1 trillion by the end of the year.

However, numerous industry players will need to confirm that the world still has its foot on the AI ​​gas. There is no guarantee that the companies that design and manufacture AI chips will guide more in turn to report quarterly earnings. If demand remains hot but next year’s guidance is anything but bullish, the semi-stock volatility that began in July could easily shake up the industry, the tech sector, or perhaps the entire stock market.

Either way, Broadcom stands out as a company that can move the ball forward even as the industry turns into a potential selloff. In its most recent quarter, Broadcom’s guidance disappointed many, with AI-related sales coming in at about $12 billion for the fiscal year, up just over 9% from last year. Arguably, it’s better to polish now and impress later than to lead and disappoint when the stakes are even higher.

After the memory chip generator Micron (NASDAQ:MU) offered its robust outlook, Broadcom seemed conservative with its guidance, perhaps too conservative. However, AVGO stock has heated up again. As we exit September, an almost palpable eruption.

Super Micro Computer

Fast growing data server company Super Micro Computer (NASDAQ:SMCI) was one of the market’s best performing stocks in the first quarter of 2024. However, after crashing more than 64% from its peak, it now risks erasing all of its gains for the year. Indeed, there is a lot of baggage and it is about more than just valuation and the state of the AI ​​trade. Undoubtedly, the elephant in the room has to be the allegations made by short seller Hindenburg Research.

With the Department of Justice (DoJ) launching an investigation into the company this week, SMCI shares added to their losses in a big way. The downside momentum is enough to scare off even the most intrepid of falling knives, as it appears to be splitting its stock 10-for-1 to start October. If the pace of selling continues, such a large stock split may not be necessary.

In any case, SMCI buyers should brace for more turbulence as analysts cut their price targets. Loop Capital is one of the latest firms to cut SMCI’s target to $1,000 from $1,500 over margin concerns.

Short allegations and the DoJ probe aside, Super Micro still stands out as an AI winner as data center demand grows. If the allegations against the company are a bit overblown, I think there is room for SMCI stock to bounce back. For such massive AI tailwinds, a 12.25x forward price-to-earnings (P/E) multiple seems unsustainably depressed.

In any case, I would wait to see how Super Micro can respond to the margin pressures and charges. If it can turn around margins and strengthen internal controls, the stock could easily rise again. I would much rather buy the name from strength than weakness. Broadcom seems to be the best AI stock to buy right now.

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