Billionaire Stanley Druckenmiller of Duquesne Family Office outperformed the S&P 500(SNPINDEX: ^GSPC) by 50 percentage points during the last three years. He purchased 239,980 shares of Broadcom(NASDAQ: AVGO) during the third quarter, and it now ranks among his top 15 holdings.
Billionaire Steven Cohen of Point72 Asset Management outperformed the S&P 500 by 30 percentage points during the last three years. He bought 211,823 shares of Arista Networks(NYSE: ANET) in the third quarter, and it now ranks among his top 10 holdings.
Importantly, Broadcom and Arista are key suppliers of artificial intelligence (AI) infrastructure, and they have seen their share prices more or less quadruple in the last two years. Both companies completed stock splits in 2024 to reset their soaring share prices.
Here's what investors should know about these artificial intelligence stocks.
1. Broadcom
Broadcom is a semiconductor and software company best known for its networking chips and application-specific integrated circuits (ASICs). It has 80% revenue share in Ethernet switching and routing (networking) chipsets, which move information through data centers. That market could grow as fast as 30% annually as enterprises build out artificial intelligence (AI) infrastructure, according to JPMorgan Chase.
Meanwhile, Broadcom has about 60% market share in high-end ASICs, which are custom chips purpose-built for specialized use cases, especially accelerating artificial intelligence workloads. Broadcom currently designs chips for three hyperscalers, a term that refers to companies with massive data center footprints. While those hyperscalers are unnamed, most analysts suspect they are Google parent Alphabet, TikTok parent ByteDance, and Meta Platforms.
Importantly, Broadcom CEO Hock Tan recently said revenue from those three hyperscalers could land between $60 billion and $90 billion in 2027, up from $12.2 billion in 2024. That implies annual growth between 70% to 95%. But Tan also said Broadcom was working with two new hyperscalers -- reportedly Apple and OpenAI -- that could be revenue-generating customers by 2027. That means AI chip sales could increase at a triple-digit pace in the next three years.
Wall Street expects Broadcom's adjusted earnings to increase at 22% annually through 2027. That consensus makes the current valuation of 47 times adjusted earnings look reasonable, but it also leaves room for upside if Broadcom tops its guidance concerning custom AI chip sales. That's why patient investors should consider buying a few shares of this stock today.
2. Arista Networks
Arista is a networking company best known for providing Ethernet switches to hyperscalers Microsoft and Meta Platforms, though it has other high-profile customers like Alphabet, Oracle, and SpaceX. The company is the revenue leader in high-speed Ethernet switches, meaning 100 gigabits per second and faster. High-speed networking is essential for AI workloads.
Importantly, Cisco Systems is the still the leader in the overall Ethernet switching space, but Arista has three times more market share in the high-speed category. That dominance is due in part to its Extensible Operating System (EOS). All Arista hardware runs a single version of EOS, but Cisco uses multiple operating systems, which can make managing the network more complicated.
Looking ahead, Arista says its total addressable market will increase at 14% annually through 2028. Artificial intelligence will undoubtedly be an important growth driver. Hyperscalers are investing heavily in artificial intelligence infrastructure to ensure they remain competitive. However, Arista should also benefit as smaller enterprises modernize their networks to support an ever-growing number of connected devices.
Wall Street expects Arista's adjusted earnings to increase at 17% annually through 2027. That makes the current valuation of 53 times adjusted earnings look expensive. But I think analysts are underestimating future earnings. Arista beat consensus estimates in the last 15 quarters, and its reported earnings were 14% above expectations on average in the last six quarters. Patient investors should consider buying a small position today.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Trevor Jennewine has positions in Arista Networks. The Motley Fool has positions in and recommends Alphabet, Apple, Arista Networks, Cisco Systems, JPMorgan Chase, Meta Platforms, Microsoft, and Oracle. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
