Top AI Stocks undergoing Stock Splits that Wealthy Wall Street Tycoons are Investing In
Billionaire Stanley Druckenmiller, of Duquesne Family Office, outperformed the S&P 500 by an impressive 50 percentage points over the past three years. His latest investment saw him purchase 239,980 shares of Broadcom (AVGO -0.69%) during the third quarter, placing it among his top 15 holdings.
Similarly, billionaire Steven Cohen, of Point72 Asset Management, managed to outperform the S&P 500 by 30 percentage points in the same period. His third-quarter purchase was 211,823 shares of Arista Networks (ANET 0.26%), elevating it to a top 10 position in his portfolio.
Broadcom and Arista have both seen their share prices almost quadruple in the last two years, notably due to their role as key suppliers of AI infrastructure. Both companies executed stock splits in 2024, aiming to reset their soaring share prices.
Here's what you need to know about these AI-focused stocks.
Broadcom
Broadcom, a renowned semiconductor and software company, has dominant shares in Ethernet switching and routing chipsets (80%) and high-end ASICs (60%). These custom chips are designed for AI workloads, which are primarily utilized by "hyperscalers," major companies with extensive data center footprints.
Broadcom CEO Hock Tan revealed that by 2027, the company's revenue from these hyperscalers could reach between $60 billion and $90 billion, up from the $12.2 billion recorded in 2024. The implied annual growth rate between 70% and 95% is remarkable. Additionally, Tan mentioned that Broadcom is working with two unnamed hyperscalers, which could potentially become revenue-generating customers by 2027. This could further escalate AI chip sales growth at triple-digit rates over the next three years.
Wall Street anticipates an average 22% annual increase in Broadcom's adjusted earnings through 2027. The company's current valuation of 47 times adjusted earnings could be deemed reasonable, considering the potential for surpassing its guidance on custom AI chip sales.
Arista Networks
Arista, a networking company, is best recognized for providing Ethernet switches to tech giants like Microsoft and Meta Platforms. The company is the revenue leader in high-speed Ethernet switches, crucial for AI workloads.
Arista's total addressable market is projected to grow at 14% annually up until 2028. As hyperscalers continue investing in AI infrastructure, and smaller enterprises modernize their networks, Arista should benefit from this expansion.
Arista's adjusted earnings are expected to increase at a rate of 17% annually through 2027. The current valuation of 53 times adjusted earnings might seem expensive, but Arista has consistently surpassed earnings expectations during the past 15 quarters.
Enrichment Data:
Broadcom
- AI Accelerator Chips:
- Broadcom is a key player in providing AI accelerators to Meta for AI tasks like ranking and recommendation models on platforms like Facebook and Instagram.
- Revenue Growth:
- Broadcom's involvement in custom AI accelerator chips for major tech companies presents growth opportunities, although its stock might be priced for perfection, with declining market share and pressure on pricing power as potential risks.
Arista Networks
- AI Networking Leadership:
- Goldman Sachs projects that Arista's revenue will grow by more than 20% in 2024, and even stronger performance is expected in 2025, with a significant increase in AI revenue.
- Cloud Cluster Projects:
- Arista's involvement in five major cloud cluster projects will drive revenue growth, with the company consistently surpassing EBIT margin guidance.
- Revenue and Margin Projections:
- Arista is anticipated to reiterate its forecasts, including 15-17% revenue growth, 60-62% gross margins, and 43-44% EBIT margins for 2025.
- Strategic Partnerships and Innovations:
- Arista's partnerships with major AI players like Microsoft and Meta Platforms, along with innovative AI ethernet switching platforms, position the company well to capitalize on AI infrastructure's growing demand.
- Financial Performance:
- Arista reported a 20% year-over-year increase in Q3 revenue, with an impressive NPAT (Net Income After Tax) rise, which contributed to the company's strong financial performance and cost management.
- Market Position and Liquidity:
- Arista's stock split aimed to improve its market liquidity, indicative of a healthy business growth.
Common Factors Influencing Future Performance
- AI Infrastructure Demand:
- The growing demand for AI infrastructure is a significant driver for both Broadcom and Arista Networks.
- Strategic Partnerships:
- Strong partnerships and collaborations with AI giants have the potential to drive both companies' growth in the rapidly expanding AI infrastructure market.
- Innovation and Product Offerings:
- Continuous innovation and development in AI-driven networking solutions at both companies present significant growth opportunities.
- Financial Performance and Execution:
- Both companies' strong financial performance and firm commitment to execution strategies are essential elements that contribute to their competitive edge.
- Druckenmiller's Duquesne Family Office, like Cohen's Point72 Asset Management, has seen impressive returns by investing in AI-focused stocks like Broadcom and Arista, outperforming the S&P 500.
- In his latest investment, Druckenmiller bought a significant number of shares of Broadcom, a semiconductor and software company, taking advantage of its dominant position in Ethernet switching and routing chipsets for AI workloads.
- Arista Networks, a leading player in high-speed Ethernet switches, has also caught the attention of investors, including Druckenmiller, due to its strong position in the AI networking market and profitable partnerships with tech giants like Microsoft and Meta Platforms.
- In 2024, both Broadcom and Arista executed stock splits, aiming to make their soaring share prices more accessible to investors, creating opportunities for investors like Druckenmiller to invest more in these promising AI-focused companies.
