Billionaire Stanley Druckenmiller and Brad Gerstner Both Dumped Broadcom (AVGO) and Bought This AI Stock Instead

Both billionaire investor Stanley Druckenmiller and Altimeter Capital's Brad Gerstner unloaded Broadcom Inc. (AVGO) during Q2 and swapped in Lam Research Corporation (LRCX) instead. Lam's decline is attributed to the semiconductor selloff, not a fundamental problem, according to bulls. In Q4, Lam outperformed earnings estimates and forecasted a 52% gross margin for Q1, exceeding expectations.

Semiconductor wafer fab equipment demand remains robust, with memory and advanced packaging driving growth. The industry anticipates increased equipment spending for fiscal 2027. Higher advanced packaging growth and raised guidance support Lam's outlook. AI infrastructure buildouts are expected to boost demand, benefiting the company.

However, risks exist that wafer fab equipment spending may not be as resilient. EPS estimates depend on sustained demand, but customers may delay orders if memory prices drop and utilization rates decline. Despite the multiple compression, Lam's 30x multiple is still higher than its historical average, and cyclical volatility could cause valuation issues if AI capex slows.

Despite AVGO's 13% year-to-date gain, the stock has been volatile due to a disclosed VMware security vulnerability. In Q2, Broadcom secured $30 billion in AI orders. It anticipates AI semiconductor revenue to surge 200% YoY for Q3 and aims for $100 billion in AI revenue by fiscal 2027. Broadcom's forward P/E of 33.80 exceeds the sector median of 24.51, and its 15-year average P/E is around 35x.

While acknowledging the risks, the focus is on finding AI stocks with greater potential and shorter timeframes for returns.