THE S&P500 And Nasdaq Composite have had a stellar start so far in 2024, with each index already posting double-digit returns.
It’s no surprise that artificial intelligence (AI) is currently one of the biggest enablers fueling financial markets. Specifically, a collective of mega-cap technology companies known as “Magnificent Seven” have seen some of the biggest gains so far this year.
Within the Magnificent Seven, the actions of semiconductor company Nvidia are already up 123% in 2024. A comeback of this magnitude could imply that investors simply can’t get enough of Nvidia, and it may be too late to cash in.
But savvy investors understand that there are many other opportunities than Nvidia in the chip market. Brad Gerstner is a hedge fund manager who founded the investment company Altimeter Capital.
According to Altimeter’s most recent filings, Gerstner actually reduced his position in Nvidia by 6,515 nominal shares during the first quarter. Additionally, Gerstner opened a new position at another semiconductor company, Broadcom (NASDAQ:AVGO).
Let’s explore Broadcom’s performance and what makes it an attractive opportunity for long-term investors interested in AI.
The current state of the AI revolution
Not all semiconductor companies are the same. NVIDIA and Advanced microsystems focus on design aspects of graphics processing units (GPUs) used for generative AI applications. However, both of these companies outsource their chip manufacturing process to manufacturing specialists like Semiconductor manufacturing in Taiwan.
Right now, I would bet that the sectors of the semiconductor industry seeing the most demand are chip makers and data center service providers. Fortunately for Nvidia, the company sits at the intersection of these two areas. It therefore experiences record growth in sales and profits each quarter.
While this is encouraging for Nvidia investors, diversifying your semiconductor exposure more broadly may be a good idea. The reason? Over time, other aspects of the chip business will begin to gain momentum beyond just purchasing chips or data center services.
How does Broadcom fit into the picture?
Broadcom specializes in network infrastructure.
If you’ve ever used an extended language model (LLM) like ChatGPT, you may notice that responses to your prompts sometimes lag or stop, resulting in an error message. The simple explanation is that LLMs process huge amounts of data.
Additionally, depending on the sophistication of your input (the input prompt in the LLM), the model may require strong network connectivity to complete the task. Broadcom specializes in this process. In other words, while Broadcom isn’t the poster child for the latest generative AI model, the company’s expertise plays a major role behind the scenes when it comes to performance.
In addition to ChatGPT, some of…
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