Investing In AI & Growth; A Personal Experience

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A personal experience about picking winners in today’s emerging megatrends.

Preamble

Two years ago already FNArena started a dedicated section on the new megatrends emanating from Generative Artificial Intelligence (GenAI) to highlight important thematics investors should be invested in.

In practice, this is easier said than done. Staying on board of companies such as Goodman Group ((GMG)) and NextDC ((NXT)), early beneficiaries from the gigantic infrastructure build to support tomorrow’s future, requires conviction beyond the short-term volatility and valuation metrics that the long-term growth runway has only just started.

While US stocks are not normally the focus for FNArena, Nicki Bourlioufas’ experience below addresses some of the challenges investors in Australia are battling with when considering early AI beneficiaries or popular growth stocks such as Pro Medicus ((PME)), WiseTech Global ((WTC)) and Xero ((XRO)).

Bourlioufas’ personal approach and experience might assist others with overcoming that initial (mental) hurdle in a rapidly changing world.

For more stories check out FNArena’s GenAI section at https://fnarena.com/index.php/tag/gen-ai/

I made 100% on Broadcom in 12 months

By Nicki Bourlioufas

I’ve backed computer chip company Broadcom to be the next Nvidia for some time; and those bets are paying off handsomely as it overtakes Tesla and targets Meta to become one of the biggest companies in US and the world.

Broadcom recently became the 7th largest company in the US, and it is closing in on Meta, mimicking Nvidia’s rise to become one of the world’s largest companies. Broadcom is a leading semiconductor company generating huge wealth gains in the US stock market.

Broadcom’s rise has been even more spectacular than Nvidia’s over the past 12 months. Its shares are up around 63% over the year to July 2 compared to Nvidia’s gain of 28%, and the Nasdaq Composite and S&P500 Indexes’ 13% gain, and 11% for the S&P/ASX200.

Yet many Australians have never heard of it, so I’m sharing my investment experience with Broadcom, buying up for myself and two children.

Broadcom is now the No. 2 chip maker in the US behind Nvidia, having gone from being one-third the size of Intel to five times as large in under 10 years. While Broadcom’s brand is largely unknown, unlike Tesla’s or Facebook’s, it is now bigger or about to get bigger, with internet traffic, along with the AI boom, perpetuating its growth. More than 99% of all internet traffic crosses through some type of Broadcom technology.

Its technology powers smartphones, broadband access, data centre networking and industrial automation.

Why did I become a buyer?

Late in 2023 and early 2024, searching around for the next Nvidia, I was drawn to Broadcom, attracted by its significant profit margins, which were then 50%-plus, and wider than Nvidia’s.

I looked at its revenue growth in the semiconductor and tech infrastructure space (impressive), and profit margins (wide), and used Google Finance to draw earnings and profit charts (exponential growth).

I looked up broker calls on WSJ.com and various other websites to back my gut feeling about the company’s attractive prospects, decision I came to on my own looking at the numbers and fundamentals.

So I started average cost buying in Broadcom in early 2024, linked as it was to the AI and digital boom. Broadcom has since returned more than 100%. With Meta now in sight, I’m still a buyer on dips, for myself and my two children.

Common sense has been key to investing in both companies. You may have heard the analogy that computer chips are the “oil” of the 21st century. We need ever-increasing numbers of faster computer chips to serve our digital world, much like the world needed oil last century to drive industrialisation.

Before investing, I asked is Broadcom a market leader (yes), is its leadership protected (yes, high barriers to entry), and if its products and services are essential (yes), and so I invested. I’d also been burned by investing in smaller companies that had fallen over, so I’ve directed the build of my investment dollars to large cap US and European computer chip companies, that still have lots of growing to do.

Indeed, Nvidia and Broadcom remain on my watch list still after I bought Nvidia at around US$18-US$22, and started with Broadcom at roughly half its current price today. The profit margins on Nvidia remain at 50%-plus and it is going to be a long time before GPUs become redundant; until then, there is one clear market leader, Nvidia, producing GPUs, the product of the world most complex manufacturing process, with AMD a long way behind.

Momentum is behind these companies, and clear fundamentals; that is, a growing need for chip technology and AI infrastructure.

I think any investor can do it; that is, use common sense to make sound decisions to invest in companies that make a lot of money producing goods and services that we all need. I research all options vigorously, checking key details such as market shares, profit margins and earnings growth, all information that is freely available online. I ask important questions, such as: is the market growing? For GPUs, computer chips and AI infrastructure, it certainly is.

While there is a lot of uncertainty out there, and markets are volatile, there is also a lot of certainty too, like the ongoing need for computer chips and IT infrastructure to power our digital lives. The world will need ever-increasing numbers of computer chips and faster ones as we move into an increasingly digital world.

We need chips to drive all computer applications, not just AI functions. While I have drawn a comparison between computer chips and oil, I admit that’s crude; oil is a commodity and GPUs are the product of the world’s most complex manufacturing process.

The statistics on the website of Dutch computer chip equipment supplier, ASM International (ASM), help us all understand Nivida and Broadcom’s amazing runs: 1.1 trillion computer chips are sold each year globally; 140 chips are sold per person, per year on average with a 3 months-approximate time required to make one advanced chip and 2000-plus chips needed for one electrical vehicle.

Moore’s Law too tells us that computer chips are constantly evolving, so new products are always being developed, and necessary, to improve the productivity of chips and all digital processes.

That’s why I remain a buyer of both companies on dips, including most recently in April.

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