Billionaires Invest in Stock-Split AI Stocks Before 2025

Investors often look to stock splits for two main reasons: they lower the price of shares, making them more accessible, and they can signify robust companies. Forward stock splits typically occur after a company's share price increases significantly, which is not common for less successful companies.

Recently, a few notable hedge fund billionaires made investments in Broadcom (AVGO) and Arista Networks (ANET), both of which have recently undergone stock splits.

• Chase Coleman from Tiger Global Management acquired 1.6 million shares of Broadcom, boosting his holdings by 912%. Broadcom is now one of his top 20 investments.
• Stanley Druckenmiller of Duquesne Family Office purchased 239,980 shares of Broadcom as part of a new investment, positioning it among his top 15 holdings.
• Steven Cohen at Point72 Asset Management obtained 211,823 shares of Arista, increasing his stake by 32%, making it one of his top 3 holdings (excluding options).

Other billionaire fund managers also made smaller purchases of Broadcom and Arista shares in the third quarter. For instance, Ken Griffin of Citadel Advisors and Israel Englander of Millennium Management bought into both companies.

Before investing in any stock, it’s essential for investors to understand the underlying business. Here’s a closer look at Broadcom and Arista.

1. Broadcom

Broadcom focuses on semiconductors and infrastructure software. Its semiconductors are integral parts of Ethernet switches, routers (used in networking), data storage systems, and mobile devices. The company's software is geared towards cybersecurity, mainframe observability, and data center virtualization.

Broadcom has a strong foothold in the semiconductor market, particularly in networking equipment, where it holds about 80% market share. The demand for Ethernet chips is projected to grow by 20% to 30% annually in the coming years, according to JPMorgan Chase.

Additionally, Broadcom leads in high-end application-specific integrated circuits (ASICs), which are specialized chips designed for particular tasks like artificial intelligence (AI). The company's market share stands at approximately 60%, with spending on AI accelerators, both custom and graphics processing units (GPUs), expected to grow at an annual rate of 29% through 2030, per Grand View Research.

Broadcom's financial results for fiscal Q4 2024 were quite impressive. Revenue rose 51% to $14 billion, with non-GAAP earnings up 28% to $1.42 per diluted share. However, organic growth was only 11%, as the acquisition of VMware has significantly contributed to revenue growth.

CEO Hock Tan's insights during the earnings call highlighted Broadcom’s work with three major clients reportedly including parent companies of Google, Meta Platforms, and TikTok. He indicated that revenue from these clients could increase by at least five times in the next three years.

Furthermore, Broadcom is in discussions with two new hyperscale clients, allegedly Apple and OpenAI, which could start generating revenue by 2027. This suggests that revenue from custom AI chips could grow even more rapidly than projected.

Looking forward, analysts forecast that Broadcom's adjusted earnings will rise by 22% annually through fiscal 2027, making the current valuation of approximately 49 times adjusted earnings seem reasonable. This may be a good time for patient investors to consider a small position.

2. Arista Networks

Arista specializes in high-speed networking solutions, providing Ethernet switching and routing platforms that facilitate communication in enterprise and cloud data centers. The company enhances its hardware offerings with software for network monitoring, automation, and security. Morgan Stanley suggests that Arista is notably well-positioned to capitalize on the rising demand for AI networking.

Arista has innovated in two key areas. First, it utilizes the Extensible Operating System (EOS) across its entire hardware portfolio, simplifying management compared to legacy vendors like Cisco Systems, which rely on multiple operating systems, making monitoring more complex.

Secondly, Arista exclusively uses third-party semiconductors, including those from Broadcom. This strategy allows Arista to incorporate the latest technologies into its networking equipment while concentrating on its core software development, giving customers the flexibility to choose their chips.

The company reported strong results in Q3, with revenue rising 20% to $1.8 billion and non-GAAP earnings increasing 31% to $0.60 per diluted share. Management updated its full-year forecast, now predicting a 22% increase in revenue for Q4 and 16% growth in 2025.

Importantly, Arista holds a leadership position in high-speed Ethernet switching markets, including switches with 100 gigabits per second or faster. As companies invest in AI infrastructure, demand for high-speed networking equipment is expected to rise, and Arista is well-positioned to benefit.

Analysts anticipate that Arista's adjusted earnings will increase by 16% annually through 2027. Although this makes the current valuation of 52 times earnings appear high, it is worth considering a small investment. Notably, Arista's earnings have outpaced estimates for 12 consecutive quarters.

In conclusion, while both Broadcom and Arista Networks present intriguing investment opportunities, it is vital for investors to conduct thorough research before making any investment decisions.

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