Billionaire Stanley Druckenmiller was one of the most successful hedge fund managers in history, generating returns of 30% annually over three decades without a single down year. He closed his hedge fund in 2010, and now exclusively manages his own money through Duquesne Family Office.
In the third quarter, Druckenmiller sold his entire stake in Broadcom (AVGO +3.18%) and bought shares of MercadoLibre (MELI +1.63%), a stock often overlooked by investors despite returning 6,910% since its 2007 IPO.
Druckenmiller is an excellent source of inspiration, but the trades mentioned above took place in the third quarter, which ended several months ago. Here is a more current look at Broadcom and MercadoLibre.
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Broadcom: The stock Stanley Druckenmiller sold
The investment thesis for Broadcom centers on its strong presence in networking chips and application-specific integrated circuits (ASICs). The company builds the fastest Ethernet switching and routing chips, and it holds over 80% market share. The buildout of artificial intelligence (AI) infrastructure should drive demand for high-speed networking platforms in the coming years.
Additionally, Broadcom is the leading supplier of custom AI accelerators, sometimes called ASICs. The company has long designed AI chips for Alphabet's Google and Meta Platforms, but its clientele has more recently expanded to include TikTok parent company ByteDance, OpenAI, and Anthropic. The company also has other major customers in the pipeline, including Apple and xAI.
Broadcom reported strong financial results in the fourth quarter of fiscal 2025 (ended in November), beating estimates on the top and bottom lines. Revenue increased 28% to $18 billion, driven by particularly strong demand for AI semiconductors. Meanwhile, non-GAAP net income increased 37% to $1.95 per diluted share.
Importantly, Broadcom's custom AI accelerators compete with Nvidia GPUs as the engines that power training and inference workloads in data centers. ASICs are generally cheaper, which has led to robust demand from certain hyperscale customers. "We see momentum continuing in Q1 and expect AI semiconductor revenue to double," CEO Hock Tan said in the press release.
However, while ASICs themselves are often cheaper than Nvidia GPUs, system-level costs are generally higher because custom AI chips require custom software tools that must be built from scratch. ASICs also use more expensive optical interconnects. Consequently, most analysts expect Nvidia to maintain its dominant market position. That could explain why Druckenmiller sold his position.
Regardless, Wall Street expects Broadcom's adjusted earnings to grow 42% annually over the next two years. That makes the current valuation of 50 times adjusted earnings look reasonable. Indeed, among 53 analysts, Broadcom has a median target price of $461 per share, which implies 35% upside from its current share price of $342.
NASDAQ: AVGO
Key Data Points
MercadoLibre: The stock Stanley Druckenmiller bought
MercadoLibre operates the largest commerce and fintech ecosystem in Latin America. Its e-commerce marketplace accounted for 28% of online retail sales in the region in 2024, and its market share is projected to reach 30% in 2026. The company has been successful due to its first-mover status, as well as its ecosystem of adjacent services.
NASDAQ: MELI
Key Data Points
To elaborate, MercadoLibre reinforces the network effect inherent to its business model by providing adjacent solutions for advertising, payments, and logistics. In fact, it is the largest advertiser and the largest fintech payment processor in Latin America. The company also has the "fastest and most extensive delivery network" in the region.
MercadoLibre reported decent financial results in the third quarter, despite missing the consensus estimate on the bottom line. Revenue increased 39% to $7.4 billion, driven by solid sales growth across the commerce (33%) and fintech (49%) segments. That was the 27th consecutive quarter in which revenue growth exceeded 30%, according to management.
Meanwhile, MercadoLibre's operating margin dropped 70 basis points and GAAP earnings increased just 6% to $421 million. But those disappointing numbers were due to strategic investments that strengthen its market position and lay the foundation for stronger growth in the future. For instance, MercadoLibre lowered its free shipping threshold in Brazil and launched its credit card in Argentina.
Indeed, those investments are already paying off to some degree. Unique buyers in Brazil increased 29% in the third quarter, the fastest pace in over four years. Also, the number of items sold in Brazil increased 42%, meaning the average buyer made more purchases. Finally, 60% of Argentine adults do not have a credit card, giving MercadoLibre a chance to pull a large percentage of the population onto its fintech platform.
Looking ahead, Wall Street expects MercadoLibre's earnings to increase at 32% annually over the next three years. That makes the current valuation of 49 times earnings look quite reasonable. Investors should feel comfortable buying a position today. Among 27 analysts, MercadoLibre has a median target price of $2,842 per share, implying 42% upside from its current share price of $1,998.
