Finding the market's most exciting stocks at any given time usually isn't too tough. Right now, artificial intelligence (AI) titan Nvidia holds the title. Apple is also firing on all cylinders again.
Identifying the market's smartest growth stock to buy, however, is a different story. These names are often inherently off the radar, exchanging buzz and hype for predictability and certainty. They're typically worth the trade-off in the long run though; they also tend to require less ongoing monitoring.
With that as the backdrop, the smartest growth stock to buy right now with an extra $1,000 worth of otherwise idle cash is arguably technology powerhouse Broadcom (AVGO 0.52%). Here's why.
More important than you realize
Most investors have heard of the company. Many also likely know that its chief business is communication technology. Most investors would be hard-pressed, however, to name a single product it manufactures.
They'd certainly notice if Broadcom's products were suddenly no longer around though.
See, this is a go-to name on several crucial technological fronts, including the chips that manage connections between hard drives, motherboards, wireless router components, Ethernet adapters, fiber optic couplers, etc., plus all the software needed to make these components perform as intended. It's unlikely you're making it through a single day where you're not benefiting from at least one of its solutions. Indeed, you're very likely utilizing a piece of Broadcom-made equipment right now. The world's not going to suddenly stop relying on its tech, particularly in light of the company's 20,000-plus U.S. patents.
The chief growth driver for its near and not-so-near future, however, is (unsurprisingly) the advent of artificial intelligence.
Although it was the movement's initial focal point, as time marches on it's becoming increasingly clear that hyperfast computer processors alone aren't enough to realize the full potential of AI. The connections between all the processors stacked high and wide within data centers must be similarly fast, capable of sending and receiving digital data in an instant. That's what Broadcom's recently introduced Sian2 digital signal processor does, optically interconnecting AI clusters at a blistering speed of up to 200 gigabits per second. And that's just a taste of how Broadcom is helping usher in the next era of AI computing.
It's this next chapter of the AI evolution that makes Broadcom stock such a great pick right now.
The AI tide is still rising
Investors are increasingly seeing how important Broadcom is to the AI movement. But, they're arguably still underestimating this company's role in artificial intelligence's future.
That's the chief takeaway from Broadcom's management's recent outlook anyway. In mid-December, CEO Hock Tan indicated that the AI interconnectivity market alone could be worth between $60 billion and $90 billion in 2027, versus a market of only $15 billion to $20 billion now. For perspective, the company did $51.6 billion worth of business during the fiscal year ending in early November, $12.2 billion of which came from this piece of the AI hardware market.
This bullish expectation holds water. Market research outfit SkyQuest believes the global AI hardware market is poised to grow at an average annualized pace of 15.5% through 2032. Mordor Intelligence's outlook is even more promising, calling for compound yearly growth of 26% through 2030.
Investors won't have to wait that long to see the company benefit from this industry tailwind though. Broadcom is looking for year-over-year AI hardware revenue growth of 65% for the current quarter alone, kicking off what should be companywide full-year top-line growth of more than 20%. Similar growth should follow for the next couple of years after this one, too. Earnings are expected to grow at an even faster clip.
Data source: StockAnalysis.com. Chart by author. 2024's decline in earnings reflects the fiscal impact of a merger with VMware.
The thing is, none of this anticipated growth is rooted in mere wishful thinking. The company is being proven, setting the stage for forward progress. Broadcom reports it recently added two different (unnamed) hyperscaler customers of its custom artificial intelligence chips, bringing this count up to five. That's apt to make it a leading name -- if not the leader -- of this somewhat fuzzy sliver of the AI technology market.
An underestimated long-term prospect
An exciting stock to buy? No, not Broadcom. Most of its tech is and will remain behind-the-scenes stuff in an arena where Nvidia remains the star player. Microsoft, Apple, and Alphabet are also still AI head-turners. None of these shining stars would be able to offer the sort of AI solutions they do without Broadcom though. And this reliance on Broadcom's technology is only likely to deepen.
So, don't sweat the fact that Broadcom shares are priced just under analysts' consensus price target of $245.83. The vast majority of the analyst community still rates this ticker as a strong buy, eyeing what likely awaits two, five, or even 10 years down the road. Patience is merited, but will almost certainly pay off here.
