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In Goldman Sachs’ 2024 outlook, strategist David Kostin upped the S&P 500’s previous target from February’s 5,200 to 5,600 by the end of the year. Presently at 5,487, this puts the broader market growth by 2%. The culprits for this revision are mega-cap tech stocks and their strong earnings. In particular, the investor confidence in upward valuations based on generative artificial intelligence (AI). The tech heavyweights Nvidia (Nasdaq: NVDA), Microsoft (Nasdaq: MSFT), Alphabet (Nasdaq: GOOGL), Amazon (Nasdaq: AMZN), and Meta Platforms (Nasdaq: META) now make up a quarter of S&P 500 market cap.Compared to an average S&P 500 company earnings per share (EPS) expectation of 6%, these five mega caps have consensus forecasts of 37%, creating a 31% EPS forecast gap. But on a long-term time scale, which mid-cap stocks have the potential to outperform the broader market in a similar manner?
Broadcom (Nasdaq: AVGO)
Over the last five years, AVGO stock has appreciated by 557%, but the fabless semiconductor company is looking to ramp up its market cap this year due to several factors. First, Broadcom established itself as a reliable supplier of everything related to data center infrastructure, from network controllers to enterprise storage.This is demonstrated by the ongoing relationship with Google, having provided custom tensor processing units (TPUs) for Google’s increasing AI workloads. Secondly, to offset the somewhat cyclical nature of its core business model, Broadcom crossed a diversification milestone when it bought cybersecurity firm VMware (VMW) for $69 billion. In the latest earnings report in June, Broadcom’s revenue is now split between semiconductor solutions (58%) and infrastructure software.Having beaten the Q2 EPS estimate of $10.84 at $10.96, Broadcom reported a non-GAAP net income increase of 20% year-over-year. Before VMware’s acquisition, the company finished the quarter with $977 million non-GAAP net income, growing its SaaS business model by 34% YoY.Owing to this sticky model and high switching costs, it is likely that VMware will continue to boost Broadcom’s bottom line, quarter by quarter. Lastly, to invite greater retail participation, Broadcom announced a 10-for-1 stock split, scheduled to take effect on July 15th. Just as this move benefited Nvidia, investors should see similar capital inflows for AVGO shares as well. Over the last three months, AVGO stock is up 44%, while the 52-week average price is $1,090.77. Now at $1,802.52 per share, AVGO shares are heading for a $1,886.43 average price target, per Nasdaq forecasting data. The upper ceiling twelve months ahead is $2,100 per share. Of course, after mid-July, this will be split by 10x.
ASML Holding N.V. (Nasdaq: ASML)
As semiconductor technology underwent miniaturization waves over the decades, the technology became increasingly complex. This complexity led to few companies being able to manufacture semiconductor chips.Dutch ASML is one of them. ASML is a layer zero company in this capacity because of its cutting-edge extreme ultraviolet (EUV) and deep ultraviolet (DUV) lithography machines. They enable the manufacturing of semiconductor nodes. While DUV handles less advanced 240 -153 nm chip nodes, EUV allows pushing the envelope into 7 nm, 5 nm, and below processes.Divided between logic (41%) and memory (59%), ASML reported net system bookings at €3.6 billion in Q1 2024. Compared to Q1 2023 at €6.7 billion, ASML’s total net sales this Q1 were €5.3 billion. In the last five quarters, ASML generated the highest net sales of €7.2 billion in Q4 ‘23, revealing a somewhat cyclical nature of the company.Although the semiconductor sector is cyclical, ASML’s unique wide-moat market position provides a buffer. By supplying semiconductor foundries globally, such as Samsung, Intel (NASDAQ: INTC), TSMC (NASDAQ: TSM), and others, the company is diversified against localized economic downturns.This makes ASML one of the safest exposures in any investor’s portfolio. Over the last five years, ASML stock has increased 424%. At present, ASML shares are $1,061, significantly up from the 52-week average of $783.79 per share. Nasdaq’s forecasting puts the average ASML price target at $1,102.25 with an upper ceiling of $1,185 per share.
MicroStrategy (Nasdaq: MSTR)
As this business intelligence company became a proxy for Bitcoin (BTC), MSTR stock went up 901% over the last five years. Greatly outperforming Bitcoin itself in the last 6 months, at 167% vs 59% respectively, MicroStrategy is the stock maverick. The gambit is simple. The entire social structure is geared toward money devaluation because politicians are addicted to catering to their client groups. As this catering continues, federal budget deficits balloon alongside debt. In turn, the central banking system regulates the deep imbalances by constantly tampering with the money supply.This effectively imposes an extra layer of taxation on non-client groups.MicroStrategy bets that Bitcoin is the exit out of this system, owing to Bitcoin’s decentralized nature and its massive network effect. Although anyone can fork Bitcoin’s open source as a digital asset, this would be meaningless as that digital asset wouldn’t be anchored to a wide network of hardware assets and proof-of-work energy harnessing. This makes Bitcoin a separate category from millions of cryptocurrencies in the market. By leveraging debt, MicroStrategy has accumulated 214,400 bitcoins at an average purchase price of $35,158. At the present price of $1,469, MSTR stock is nearly double its 52-week average of $768.38 per share. More By This Author:Why Meta Is A Dark Horse In The Current AI Market Cycle
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