The Magnificent 7 cohort isn’t as exciting as it used to be, with many members dragging their feet while only a few names, most notably Meta Platforms (NASDAQ:META), do most of the heavy lifting. In the coming weeks and months, it will be interesting to see where the Mag 7heads as the leadership group changes while some recent laggards look to experience some sort of breakout.
Only time will tell if the most prominent and brightest tech stars are due for another swift leg higher. Either way, investors shouldn’t pro-actively avoid the group, whether that entails opting for the Mag 7-light equal-weighted version of the S&P 500 or some sort of exchange-traded fund (ETF), like the newly-launched Defiance Large Cap ex-Mag 7 ETF (NASDAQ:XMAG), that’s more akin to the S&P 493 — the S&P 500 minus the Magnificent 7.
In any case, it’s up for debate as to whether Tesla (NASDAQ:TSLA) deserves its spot in the cohort. After sinking following its robotaxi event, arguably, the stock has lost its luster and will likely struggle to regain it until demand for electric vehicles (EVs) unexpectedly trends higher. Though Cybercab and Robovan offerings do look impressive, it could take many, many years before such efforts work their way into the quarterly results. Many investors just don’t have the time, patience, or confidence to wait for such efforts to pay off.
Either way, shares of Elon Musk’s $696 billion empire look far less magnificent than $838 billion AI chip titan Broadcom (NADSAQ:AVGO), which has more than doubled over the past year. Though I wouldn’t go as far as to refer to Broadcom as the second coming of Nvidia (NASDAQ:NVDA), I do think the firm has earned Tesla’s spot in the Magnificent 7.
Key Points About This Article
- Broadcom earned its spot in the Magnificent 7 after a remarkable past-year rally.
- More gains could be coming as its custom chip and software growth drivers kick into high gear.
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.
The newest Mag 7 member may be the most magnificent of them all
It’s tough to outdo the performance of Nvidia stock, especially as it looks to set the stage for a breakout to new all-time highs ahead of its latest Blackwell chip launch. That said, just because NVDA stock is heating up again doesn’t mean we should give AVGO shares any less love as it enjoys an explosive expansion of its own.
With numerous catalysts on the horizon and a still-modest 29.15 times forward price-to-earnings (P/E) multiple, perhaps there’s more to love about AVGO stock than meets the eye.
In September, William Blair analyst Sebastien Naji started AVGO with a buy rating, citing “continued growth into fiscal 2025 and 2026 driven by increasing custom chip demand” and “improved software monetization.”
Custom AI chip opportunity is a significant growth driver.
Undoubtedly, there seems to be a rush to custom AI chips, with many mega-cap tech titans looking to take a more active role in designing their hardware and lowering their dependence on third-party GPU makers. As more firms look to double down on custom (ASIC) chips in the coming years, Broadcom stands out as a key beneficiary.
Of course, GPU demand isn’t about to fade in favor of ASIC chips anytime soon, especially as firms embrace nuclear energy to power their next-generation AI data centers. Either way, custom chips could play a growing part in running the most sophisticated AI models in the not-so-distant future, especially as more firms value efficiency and customization at the hardware level.
Over the next four to five years, JP Morgan (NYSE:JPM) sees Broadcom eying a $150 billion market opportunity in custom chips.
Alphabet (NASDAQ:GOOG) Google’s tensor processing unit (TPU) chips are just one of the potential significant sales growth drivers for Broadcom over the coming years, especially if more tech titans — like Apple (NASDAQ:AAPL) — become more open to considering the Nvidia alternatives out there.
The software business could also be a big boon.
It’s not just AI chips where Broadcom can shine. With VMWare’s recent transition to the subscription model, Broadcom has a chance to improve the monetization of its software business — something Mr. Naji brought up in his recent bullish note — while positioning itself for a longer-term expansion.
All considered, AVGO stock has the hardware and software drivers in place to perhaps close off the year as one of the Mag 7’s best performers. At today’s modest price of admission, perhaps it makes sense to favor the name as it looks to join the $1+ trillion club.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Latest from 24/7
