The US stock market has proven to be quite resilient in 2024 despite various fluctuations and stresses. After an exceptionally strong 2023, the base is broad S&P 500 The index has returned 7.5% so far in 2024.
Although investors are now worried about a decline due to high interest rates and geopolitical risks, there is still money to be made in the market. Long-term investors can purchase small stakes in fundamentally strong growth companies that benefit from solid long-term tailwinds to gradually build wealth.
These are the reasons for growth stocks Broadcom (NASDAQ:AVGO) And Now stocks (NYSE:NOW) Both meet these criteria and can prove to be exceptional purchases in the long run.
Broadcom
Broadcom, a leading provider of high-speed networking solutions, delivered solid results in its most recent quarter (the first quarter of fiscal 2024 ended February 4), with both revenue and profit comfortably beating consensus estimates. However, investors appear to be disappointed with the company’s weaker-than-expected guidance for fiscal 2024, and this has impacted the company’s share price performance over the past month. However, there are still several reasons for the long-term investor to like the stock.
First, Broadcom is seeing solid demand for its artificial intelligence (AI)-optimized accelerators and AI-related network components such as Tomahawk 5 800G switches, Ethernet, digital signal processing (DSP) platforms, and optical components from hyperscaler customers and large enterprise AI data center companies deploy on site. This becomes clear when you consider that the company’s AI revenue quadrupled year-over-year to $2.3 billion in the first quarter. Broadcom now expects AI revenue to exceed $10 billion, accounting for nearly 35% of revenue in fiscal 2024, well above the previous estimate of 25%.
Second, it is very difficult for new competitors to enter the custom AI accelerator business because it requires companies to work with large customers over several years and build a supporting software ecosystem. Broadcom has been working with two large hyperscalers for several years. Therefore, the company is well positioned to benefit from the growth of the customized AI accelerator market.
Third, the acquisition of VMware plays a critical role in increasing Broadcom’s infrastructure software revenue. In the first quarter, the company’s infrastructure revenue rose 153% year-over-year to $4.6 billion. VMware generated $2.1 billion in revenue during its 10.5-week contribution to Broadcom’s first-quarter results (since the acquisition closed in November 2023). The company expects VMware’s revenue to grow by a double-digit percentage sequentially throughout fiscal 2024.
Broadcom’s VMware strategy is primarily based on upselling VMware Cloud Foundation (VCF) to customers already running workloads using VMware’s vSphere virtualization platform. VCF is a complete software stack (including compute, storage and networking functions) that virtualizes customers’ data centers. By helping create an on-premise, self-service cloud platform as an alternative to the public cloud, VCF enables enterprises to run high-performance computing and AI workloads without compromising privacy. Additionally, VMware’s partnership with Nvidia also enables customers to run advanced AI models with VCF (leveraging the processing power of Nvidia’s advanced AI chips).
To be fair, Broadcom’s price-to-sales (P/S) ratio of 16.5 is quite expensive compared to its five-year historical average valuation of 9.2. Still, with many strong tailwinds, Broadcom appears well positioned for robust growth in the coming months.
Now stocks
Nu Holdings is a fully digital bank that offers a range of financial solutions such as credit cards, savings and personal accounts, lending and investment solutions and insurance in the Latin American markets of Brazil, Mexico and Colombia.
With a high proportion of the young population (19 to 30 years old), whose spending and investment needs are increasing rapidly, and widespread internet penetration, Latin America is proving to be an exceptional opportunity for the digital bank.
Nu’s customer base has grown rapidly, growing 26% year-over-year to 93.9 million customers at the end of 2023. Brazil added an average of 1.3 million customers per month in 2023, reaching a total customer base of 87.8 million customers. On the other hand, Mexico and Colombia are relatively new markets with 5.2 million and over 800,000 customers respectively.
Nu has been quite successful at cross-selling and upselling to existing customers, which in turn has helped build a solid customer base. This becomes clear when you consider that active customers used an average of four products in the fourth quarter. The company’s average revenue per active customer (ARPAC) also increased 23% year-over-year (at constant exchange rates) to $10.6 at the end of the fourth quarter. Still, the company’s cost of servicing per customer remained consistent year-over-year at $0.90.
Nu’s financial performance in the most recent fourth quarter was also outstanding. Revenue rose 57% year-over-year (in constant currency) to $2.4 billion, while net income rose 489% year-over-year to $360.9 million.
However, the company is not resting on its laurels and is focused on further strengthening growth in 2024. Nu aims to expand secured lending in Brazil and increase its share of the high-income segment in Brazil. Additionally, the company is working to scale in Mexico, leveraging the successful launch of its Cuenta Nu digital savings account in 2023.
Nu is currently trading at just under seven times the last 12 months’ sales. Since analysts expect the company’s fiscal 2024 revenue to grow a solid 38% year over year, this valuation seems quite low. Given its multiple tailwinds, solid financials, and significantly low valuation, Nu appears to be a smart choice right now.
Should you invest $1,000 in Broadcom now?
Before buying Broadcom stock, consider the following:
The Motley Fool Stock Advisor The analyst team has just identified what they think this is The 10 best stocks so investors can buy it now… and Broadcom wasn’t one of them. The ten stocks that made the cut could deliver huge returns in the years to come.
Think about when Nvidia created this list on April 15, 2005… if you have $1,000 invested at the time of our recommendation, You would have $540,321!*
Stock Advisor provides investors with an easy-to-follow roadmap to success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks per month. The Stock Advisor has service more than quadrupled the return of the S&P 500 since 2002*.
See the 10 stocks »
*Stock Advisor returns from April 8, 2024
Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in Nvidia and recommends it. The Motley Fool recommends Broadcom and Nu Holdings. The Motley Fool has a disclosure policy.
“2 Growth Stocks to Buy Like There’s No Tomorrow” was originally published by The Motley Fool