Unraveling the Economic Data Maze
On Tuesday, the artificial intelligence (AI)-related titans including Broadcom, (NASDAQ: AVGO), Arista Networks, (NYSE: ANET), and Rambus, (NASDAQ: RMBS) took a tumble in trading. Plummeting by 2.7%, 3.7%, and 3.9% respectively, as of 1 p.m. ET, these downticks left investors scratching their heads in disbelief.
The flash dip wasn’t directly linked to any groundbreaking news but rather to the surge in long-term bond yields spurred by recent economic data. This spike in rates set the investor community on edge, fearing that interest rates might not descend as swiftly or substantially as previously imagined. The anxiety is further amplified for stocks with higher multiples, particularly those entrenched in the artificial intelligence domain.
The AI Journey: A Bumpy Ride to the Top
Linked intricately to the AI revolution, each of these stocks trades at formidable multiples. Arista takes the lead in producing rapid data center switches essential for facilitating the data flow crucial for AI training and inference. Meanwhile, Broadcom is the maestro behind the key chipset embedded in Arista’s switches, besides managing its bespoke AI custom accelerator venture.
Rambus, however, seems to have lost its footing amidst the trio, with a lackluster performance at an 8.8% dip for 2024 so far. Feeling the brunt of the ongoing downturn in the memory market, Rambus yearns for greener pastures. Despite its current predicament, the memory market is slowly but surely gearing up for an upswing, granting Rambus a silver lining. The impending AI proliferation stands to benefit Rambus, reliant on its memory interface solutions that act as the glue connecting memory chips with other segments of the computational edifice.
AVGO PE Ratio data by YCharts
The backbone of AI stocks, their valuations loom higher than the ordinary stock. The burgeoning yields have a direct impact on such lofty valuations. Notably, the 10-year Treasury Bond yield ascended to a pinnacle of 4.4%, marking a fresh zenith for 2024. This escalation followed the release of a robust Job Openings and Labor Turnover Survey (JOLTS) report. The report unveiled a slight uptick in job openings, signifying an upsurge in hiring in February compared to January.
Storm Clouds for Broadcom
Casting a pall over Broadcom’s paradise, its chief legal officer, Mark David Brazeal, made heads turn by offloading nearly $3.3 million worth of Broadcom shares on March 28. While this translated to a mere 5% of his stake, the sheer volume of the sale hints at a possible pause in Broadcom’s remarkable stride.
Yet, today’s downturn in the AI stock realm need not spark alarm bells, as fluctuations are customary for any stock or sector witnessing a robust ascent. Moreover, the trifling surge in February hiring paints a somewhat rosier economic picture compared to the recessionary forecasts of yesteryears.
Although a surge in inflation could potentially cast a shadow, for now, the scenario seems more aligned to a retrenchment of the timeline for inflation to discard its 2% pedestal, thereby postponing anticipated rate cuts. A worrisome inflation spike might be lurking in the shadows, but as of now, it’s a waiting game.
Before diving into Broadcom stocks, ponder this:
According to Motley Fool Stock Advisor analysts, the 10 best stocks unveiled for investors to bank on don’t spotlight Broadcom. These favored 10 stocks hold the promise of yielding substantial returns in the foreseeable future.
Cut from a different cloth, Stock Advisor choreographs a seamless blueprint for investors, offering not just portfolio-building tips but also real-time inputs from analysts and fresh stock prospects monthly. Since 2002, the service has outpaced S&P 500 returns by a staggering margin.
Scan through the 10 recommended stocks
*Stock Advisor returns as of April 1, 2024
Billy Duberstein is knee-deep in Broadcom stock dealings. His clients might have a horse in this race. The Motley Fool has a stake in and vouches for Arista Networks. Recommend it does. The Motley Fool complies with a disclosure policy, no strings attached.
The viewpoints and musings shared herein are the express beliefs of the author and aren’t necessarily a mirror image of Nasdaq, Inc.’s stance.
