Bristol Gate Capital Partners released its Q3 2025 investor letter for the “US Equity Strategy,” revealing that the strategy underperformed the benchmark, the S&P 500® Total Return Index, during the quarter. Despite this, the portfolio demonstrated robust performance in dividend growth, achieving a 15% increase over the past year. The underperformance primarily stemmed from limited exposure to the AI and Technology, Media, and Telecommunications (TMT) sectors, which benefitted from the Federal Reserve’s recent rate cuts.
The investor letter particularly focused on Broadcom Inc. (NASDAQ:AVGO), a prominent technology firm specializing in semiconductor and infrastructure software solutions. Despite a one-month return of -8.31%, Broadcom’s stock has witnessed a remarkable 50.90% increase over the past year, closing at $349.85 per share on December 30, 2025.
Broadcom’s Promising Financial Results
Bristol Gate highlighted the company’s impressive performance in its most recent quarter. Broadcom reported its third-quarter results on September 4, 2025, exceeding analyst expectations for both revenue and earnings per share. A notable achievement was the addition of a significant new customer for its custom AI accelerator products, resulting in over $10 billion in orders scheduled for delivery in Q3 2026. The company anticipates that this new business, combined with continued growth from existing customers, will significantly enhance its AI revenue growth for fiscal 2026, surpassing last fiscal year’s growth rate of 50-60%.
The investor letter stated, “Our ‘NVDA’s demand today is AVGO’s opportunity tomorrow’ thesis continues to play out in the hyperscaler market where demand for custom AI accelerators continues to grow as each of them journeys towards compute self-sufficiency.” This optimism is reflected in Broadcom’s overall backlog, which now stands at $110 billion, with more than half derived from semiconductor orders.
Bristol Gate’s analysis also noted Broadcom’s rising popularity among hedge funds. The company secured the 12th position on the list of the 30 most popular stocks among hedge funds, with 183 hedge fund portfolios holding shares at the end of Q3 2025, an increase from 156 in the previous quarter.
Investment Outlook for Broadcom
Broadcom’s record revenue of $16 billion in the fiscal third quarter of 2025 marks a year-over-year increase of 22%. While acknowledging the risks associated with investing in Broadcom, Bristol Gate expressed strong confidence in certain AI stocks that may offer higher returns in a shorter timeframe. For investors seeking alternatives with greater upside potential, the firm suggested exploring other AI stocks that could potentially offer 10,000% upside.
For further insights into the AI sector, Bristol Gate provided links to its reports on the best AI stocks recommended by analysts. Investors can also access various hedge fund investor letters from Q3 2025 for additional perspectives.
This detailed analysis underscores Broadcom’s strategic positioning within the rapidly growing AI market and highlights the potential for significant returns as demand for innovative technologies continues to surge.
