Billionaires Investing in Stock-Split AI Stocks Ahead of 2025

Smart investors often appreciate stock splits for two main reasons: they make shares more affordable by lowering the price per share, and they can hint that a company is of good quality. Generally, forward stock splits occur only after a considerable increase in share price, which is less common among weaker companies.

Recently, several billionaire hedge fund managers have shown interest in stocks that have undergone splits. In the third quarter, they purchased shares of Broadcom and Arista Networks, both of which recently implemented stock splits.

• Chase Coleman of Tiger Global Management bought 1.6 million shares of Broadcom, boosting his stake by an impressive 912%. Broadcom has now become one of his top 20 holdings.
• Stanley Druckenmiller from Duquesne Family Office acquired 239,980 shares of Broadcom, marking the start of a new position. Broadcom now ranks among his top 15 holdings.
• Steven Cohen at Point72 Asset Management bought 211,823 shares of Arista, increasing his stake by 32%. Arista is now one of his top three holdings excluding options contracts.

Other billionaire investors, like Ken Griffin of Citadel Advisors and Israel Englander of Millennium Management, also purchased shares of Broadcom and Arista, although their investments were smaller.

It is essential for investors to research a company's business model before making any purchases. Below, we delve into the unique characteristics of Broadcom and Arista.

1. Broadcom

Broadcom is renowned for its semiconductors and software for infrastructure. The company's chips are integral to Ethernet switches and routers, data center storage solutions, and mobile devices. Their software offerings also cover cybersecurity, mainframe observability, and data center virtualization.

In specific semiconductor markets, Broadcom holds a dominant position. For example, the company commands 80% of the market share in networking equipment, and, according to JPMorgan Chase, spending on Ethernet chips is expected to rise by 20% to 30% annually over the coming years.

Broadcom is also a leader in high-end application-specific integrated circuits (ASICs), which are custom chips designed for specific purposes, including artificial intelligence (AI). Holding 60% market share, the demand for AI accelerators, including both custom-designed chips and graphics processing units (GPUs), is predicted to increase at an annual rate of 29% through 2030, as reported by Grand View Research.

Broadcom released decent financial results for its fiscal Q4 of 2024, which concluded in November. The company reported a revenue increase of 51%, totaling $14 billion, with non-GAAP earnings rising by 28% to $1.42 per diluted share. However, organic revenue growth was a modest 11% due to the addition of virtualization specialist VMware, which contributed 40 percentage points to overall growth.

What sent the stock skyrocketing was CEO Hock Tan's insights shared during the earnings call. He indicated that Broadcom is currently designing custom AI accelerators for three major tech companies, believed to be Alphabet (parent of Google), Meta Platforms, and ByteDance (parent of TikTok). Tan stated that revenues from these clients are anticipated to increase at least five-fold in the next three years.

Moreover, he revealed that Broadcom is collaborating with two additional major clients, reportedly Apple and OpenAI, which are expected to start generating revenue for the company by 2027. This indicates that revenue from custom AI chips could potentially grow even more than five-fold over the next three years, hinting at significant market expansion for Broadcom.

Looking towards the future, analysts on Wall Street are projecting an annual increase of 22% in Broadcom’s adjusted earnings through fiscal 2027. This projection makes the current valuation of 49 times adjusted earnings appear reasonable. Hence, prudent investors may want to consider taking a small position now.

2. Arista Networks

On the other hand, Arista focuses on high-speed networking solutions. The company offers Ethernet switching and routing platforms that facilitate the movement of data through enterprise and cloud data centers, supplemented by software tools for network monitoring, automation, and security. Morgan Stanley identifies Arista as particularly well-positioned to take advantage of the growing need for AI networking.

Arista has introduced innovations in two critical areas. Firstly, its key innovation is the Extensible Operating System (EOS) that operates across its entire hardware lineup. This unique approach distinguishes Arista from traditional vendors like Cisco Systems, who rely on multiple operating systems, complicating network monitoring.

Secondly, Arista does not manufacture semiconductors itself but instead sources them from third-party suppliers like Broadcom. This strategy enables Arista to incorporate the latest technology into their networking products without heavily investing in semiconductor development. It allows them to concentrate on software development while giving customers flexibility regarding chip selection.

Arista reported positive results in the third quarter, with a revenue increase of 20%, amounting to $1.8 billion, and a non-GAAP earnings rise of 31% to $0.60 per diluted share. The management team also revised their full-year revenue guidance upwards, predicting a 22% increase in Q4 alone. Looking further ahead, the company anticipates a 16% revenue growth in 2025.

Importantly, Arista maintains its edge as a leader in high-speed Ethernet switching platforms, which include devices exceeding 100 gigabits. The rising demand for high-speed networking gear is expected to grow as enterprises invest more in AI infrastructure, making Arista ideally positioned to capitalize on this trend.

Analysts forecast that Arista's adjusted earnings will grow by 16% annually through 2027. While this outlook suggests the current valuation of 52 times earnings appears somewhat pricey, investors may still benefit from considering a small investment today. Arista's earnings have consistently surpassed consensus estimates for the past 12 quarters.

Investors, Billionaires, Stocks