The smart money often moves in herds. You see it in the monthly crowding reports from firms like Data Insights, which track what hedge funds are buying and selling. In a rocky September, with the S&P 500 dipping after the Fed’s rate hike, these managers saw a clear opportunity. They piled into large tech stocks. The usual suspects like Amazon and Microsoft topped the list. But one name stood out for its dramatic reversal.
Broadcom.
In August, the AI chipmaker was a top short target for many funds. By September, it had flipped to become one of their most popular long holdings. This kind of swift, collective shift in sentiment from the pros makes you pay attention. It begs the question they were likely asking themselves. Is this just a post-earnings trade, or is there a deeper story here? Having covered these swings for years, I find the answer lies in the cold, hard numbers and the long-term trajectory they paint.
Broadcom reported its third quarter earnings on September 2. The results were not just good. They were staggering. Revenue hit $29.6 billion. That is an 86% jump from the same period last year. Net income soared 216% to $13.1 billion. The engine behind this surge is unmistakable. Revenue from AI semiconductors exploded to $16.7 billion. That represents a 221% increase year over year. It blew past every estimate on the Street. You do not see growth figures like that every day, even in the frothy AI sector.
Yet the stock dipped after the report. Why? Some analysts focused on what they called disappointing forward guidance. This is where you need perspective. The company projected Q4 revenue of $34.8 billion. That is 93% growth. The whisper number was $35.03 billion. They missed by a hair on a colossal number. More importantly, look at the AI pipeline. Broadcom expects AI chip revenue to hit $21.7 billion this coming quarter. That is up 236%. They then raised their full year 2026 AI revenue target to $58 billion from $56 billion. The long range forecast is what caught my eye. They are targeting $115 billion in AI revenue for 2027 and a doubling to $230 billion in 2028. These are not incremental steps. They are moonshots backed by concrete design wins and supply contracts.
I have heard other concerns. Gross margins have ticked down. They sit at a still very attractive 73%. The decline comes from the rapid mix shift into the AI business, which carries lower margins than their legacy software and networking segments. This is a natural, temporary compression that should stabilize as the AI segment scales. The real concern for many was valuation. After a blistering run that delivered a 59% annualized return over three years, including triple digit years in 2023 and 2024, the stock was priced for perfection. Its price to earnings ratio soared above 100 last year. It was due for a breather.
This is where the hedge fund calculus gets interesting. The post earnings dip presented an entry point. The current P/E ratio is now 46. More telling is the forward P/E, which sits at just 19. When you factor in growth, the picture gets even clearer. The five year PEG ratio is 0.36. A ratio below 1 typically suggests a stock may be undervalued relative to its growth prospects. For funds looking at a two to three year horizon, these metrics, coupled with that staggering AI revenue roadmap, made Broadcom irresistible. They are not betting on next quarter. They are betting on the 2028 target.
So should you follow their lead? That depends entirely on your own timeline and conviction. The numbers tell a powerful story of a company dominating a critical slice of the AI infrastructure boom. The valuation has cooled to a level that prices in growth, not just hype. But no single stock is a sure thing. Other services, like The Motley Fool’s Stock Advisor, have recently highlighted ten different stocks they believe hold greater potential, a reminder that there are always other opportunities. Their historical picks, like Netflix and Nvidia, show the transformative power of finding the right growth story early.
- Top short target in August
- Revenue hit $29.6 billion
- Net income soared 216%
- AI chip revenue expected to hit $21.7 billion
- Five year PEG ratio is 0.36
- Targeting $230 billion in AI revenue by 2028
| Metric | Value |
|---|---|
| Q3 Revenue | $29.6 billion |
| Net Income | $13.1 billion |
| AI Revenue Growth | 221% |
| Q4 Revenue Projection | $34.8 billion |
| P/E Ratio | 46 |
| Forward P/E | 19 |
Watching where the hedge funds go gives you a signal. It is not a command. In Broadcom’s case, their collective move back to the long side is a data point rooted in a clear narrative. Explosive AI growth is meeting a more reasonable stock price. That combination tends to get the attention of professional investors who think in billions and time horizons of years. It is a combination worth putting back on your radar.
