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2 growth stocks to buy like there is no tomorrow

The US stock market has proven to be quite resilient in 2024, despite various fluctuations and pressures. After an exceptionally strong 2023, the broad base S&P500 The index has returned 7.5% so far in 2024.

Although investors are now starting to worry about a pullback due to high interest rates and geopolitical risks, there is still money to be made in the market. Long-term investors can acquire small stakes in fundamentally strong growth companies that have strong, secular tailwinds to build wealth gradually.

This is why growth stocks Broadcom (NASDAQ:AVGO) And Now Holdings (NYSE: NOW) both meet these criteria and could prove to be exceptional purchases in the long run.

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Broadcom

Broadcom, a leading provider of high-speed networking solutions, delivered solid results in its latest quarter (the first quarter of fiscal 2024 ended February 4), with both revenue and profit easily surpassing consensus estimates. However, investors appear to be disappointed with the company’s weaker-than-expected guidance for fiscal 2024, and this has affected the company’s share price performance over the past month. Despite this, there are still several reasons why the long-term investor likes the stock.

First, Broadcom is witnessing 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-scale enterprises . companies that deploy on-premise AI data centers. This is evident considering that the company’s AI revenues quadrupled year over year to $2.3 billion in the first quarter. Broadcom now expects AI revenue to account for nearly 35% of fiscal 2024 revenue of over $10 billion, significantly higher than the previous estimate of 25%.

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Second, it is very difficult for new competitors to enter the custom AI accelerator business because it requires companies to work with large customers for several years and create a supporting software ecosystem. Broadcom has been working with two major hyperscalers for several years. Thus, the company is well positioned to benefit from growth in the custom AI accelerator market.

Third, the VMware acquisition plays a crucial role in increasing Broadcom’s infrastructure software revenues. In the first quarter, the company’s infrastructure revenues 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 double digits sequentially in fiscal 2024.

Broadcom’s VMware strategy relies primarily on upselling VMware Cloud Foundation (VCF) to customers already running workloads with VMware’s vSphere virtualization platform. VCF is a complete software stack (including compute, storage and networking capabilities) that virtualizes customers’ data centers. By helping to create an on-premise self-service cloud platform as an alternative to the public cloud, VCF enables companies to run high-performance compute and AI workloads without compromising privacy. Plus VMware’s partnership with Nvidia also allows customers to run advanced AI models with VCF (using the computing power of Nvidia’s advanced AI chips).

In fairness, Broadcom’s price-to-sales (P/S) ratio of 16.5x is quite expensive compared to its historical five-year average valuation of 9.2x. Nevertheless, given the many strong tailwinds, Broadcom appears well poised for a robust growth trajectory in the coming months.

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Now Holdings

Nu Holdings is a fully digital bank that offers a range of financial solutions such as credit cards, savings and personal accounts, credit and investment solutions and insurance in the Latin American markets of Brazil, Mexico and Colombia.

With a high percentage of the young population (19 to 30 years old) with rapidly increasing spending and investment needs and widespread internet penetration, Latin America is proving to be an exceptional opportunity for the digital bank.

Nu’s customer base has experienced rapid growth, 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.

Now has been quite successful in cross-selling and upselling to existing customers, which in turn has helped create a strong customer base. This is evident considering that active customers used an average of four products in the fourth quarter. The company’s average revenue per active customer (ARPAC) also grew 23% year over year (on a constant currency basis) to $10.6 at the end of the fourth quarter. Despite this, the company’s service costs per customer have remained stable at $0.90 year-over-year.

Nu’s financial performance in the recent fourth quarter was also excellent. Revenue grew 57% year-on-year (at constant exchange rates) to $2.4 billion, while net profit rose 489% year-on-year to $360.9 million.

However, the company is not resting on laurels and is focused on further strengthening growth in 2024. Now it aims to scale up secured lending in Brazil and increase its share of the high-income segment in Brazil. Additionally, the company is working to scale in Mexico by leveraging the successful launch of its Cuenta Nu digital savings account in 2023.

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Now currently trades at just under seven times twelve-month sales. With analysts expecting the company’s revenue to grow at a solid 38% year-over-year in fiscal 2024, this valuation seems quite low. Given the many favorable circumstances, the solid financial figures and the considerably low valuation, Nu seems to be a smart choice.

Should You Invest $1,000 in Broadcom Now?

Consider the following before buying shares in Broadcom:

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Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. 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

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