2024’s been a terrific year for S&P 500 index investors, who’ve reaped a 29.8% total return since January. That’s almost triple its long-term average of 10%. And yet this performance pales in comparison to the success of Broadcom (NASDAQ:AVGO).
Large-cap stocks don’t often get much attention from investors. But with the surge of artificial intelligence (AI) spending, many of these businesses have reaped tremendous gains over the last two years. And the semiconductor manufacturer has been no exception, with the stock surging by almost 120%, pushing its market-cap over the $1trn threshold!
AI-fuelled explosion
The story at Broadcom’s very similar to Nvidia. With data centres and other tech-driven businesses seeking to upgrade their IT infrastructure for large language AI models, demand for Broadcom’s AI chips has gone through the roof.
Its latest quarterly results revealed $3.7bn of revenue from these products – a 150% year-on-year increase. That pushed overall sales up by 51% for the quarter. And given AI spending’s expected to continue rising next year, Broadcom’s momentum might only be getting started, especially since management sees a $60bn-$90bn market opportunity for its AI chips by 2027.
With an explosive outlook and growth accelerating drastically, it’s not surprising to see the semiconductor stock skyrocketing. Of course, Broadcom isn’t the only business chasing this opportunity. The threat of competition’s rising as more companies are seeking to develop their own AI chips to cash in on the gold rush. And given semiconductors are a notoriously cyclical space, overproduction could eventually result in slow-moving inventory and a sharp reduction in revenue expansion.
Nevertheless, it’s a growth story worth watching closely. After all, Nvidia managed to reach a market-cap of over $3trn. If Broadcom can do the same, the returns seen so far may only be the tip of the iceberg.
Who’s next?
Right now, there are nine US businesses sitting in the four-comma club. So who’s going to be number 10? Looking just at market-caps, Berkshire Hathaway looks like it’s the closest at $982bn. In fact, Warren Buffett’s investment firm briefly surpassed $1trn earlier this year before cooling slightly.
As for a runner-up, Walmart’s the next closest with a market-cap of $762bn, with Eli Lilly on its heels at $701bn. It’s not just the chip makers leveraging AI to generate growth. Both the retail giant and pharmaceutical titan are incorporating the technology to boost operational performance, from AI personal shopping assistants to clinical data analysis.
Are these businesses guaranteed to hit a trillion? No, there are never any guarantees in the world of investing, especially when competition’s fierce. Nevertheless, both enterprises have impressive track records of defying expectations, making them worth a closer look, in my opinion.
