When investors run through their mental catalog of the market’s biggest winners ever, they see names like Nvidia And Amazon come to mind. And rightly so. Nvidia’s technology is at the core of most artificial intelligence (AI) platforms, while Amazon is largely responsible for ushering in the age of e-commerce. The profits their shares make millionaires are well justified.
However, there’s another, less obvious name with an equally impressive track record that could continue to deliver outsized profits. That company is that Broadcom (NASDAQ:AVGO). Here’s a closer look at why you might want to take a long-term position in this ticker sooner rather than later.
In the simplest terms, Broadcom makes a wide range of communications technologies. Technically, it’s been doing this since 1961, when it was a division of Hewlett-Packard. The Broadcom name came into being in 1991, when the standalone entity was launched to take advantage of the opportunities presented by the then fledgling broadband and networking industries. Another Hewlett-Packard spinoff company called Avago eventually acquired Broadcom in 2016, merging its wireless and wired communications technology offerings with Broadcom’s, although it clearly chose to use the Broadcom name.
So what does it actually produce? Adapters that connect hard drives to motherboards, Wi-Fi antennas, router hardware, and fiber optic connectivity solutions, to name a few.
However, it’s not the hardware that makes Broadcom such a growth powerhouse. It’s the reason the technology is so needed.
Look, Broadcom’s technology is critical to data centers, and increasingly so thanks to the rapid growth of artificial intelligence.
Take, for example, the severe delay that occurs when transferring mountains of digital data from one processor to another within the wall of a motherboard connected to another network. Broadcom’s recently introduced Sian2 digital signal processors overcome this problem by being able to process data at an incredible speed of 200 gigabits per second per lane. What does this mean in layman’s terms? It is a particularly important solution for generative AI platforms, which are emerging as one of the more marketable applications of artificial intelligence.
And that’s just a sampling of how crucial Broadcom is to the ever-growing artificial intelligence industry.
The demand for such solutions will not decrease anytime soon. In fact, it will speed up and last for a while.
That’s the word from a bond ratings and investment researcher Moodys Anyway. Earlier this year it predicted that global data center capacity would double over the next five years. This expectation aligns with Precedence Research’s outlook, which suggests that global spending on AI hardware will grow from last year’s $54 billion to $474 billion by 2034. This growth bodes well for Broadcom, simply because its technology is so is necessary to get the most out of these possibilities. major investments.
However, investors don’t have to wait that long to benefit from this. While the 44% revenue growth forecast for this year is a bit unusual, the company will likely continue to grow at a double-digit pace for at least a few more years as the cost of AI continues to rise. are declining and the benefit of artificial intelligence tools is increasing.
And these prospects may be an understatement of what actually lies ahead as the company ventures into new places in the artificial technology market. As Mizuho Securities analyst Vijay Rakesh says of his recent decision to raise his price target on Broadcom from $190 to $220 per share: “Broadcom’s custom silicon business could see a $16 billion or more opportunity if it wins OpenAl’s chip business, too starting in the second half of the year. Rakesh thinks the custom silicon market alone will eventually be worth $56 billion.
For perspective, Broadcom has done just under $47 billion in business over the last four quarters.
While Broadcom’s 9,900% rise since August 2009 (when Avago went public) is clearly a millionaire-making move, don’t look for an exact repeat of this performance from here. This company was in the right place at the right time, ready for the advent of personal computers and cell phones. These culture-changing developments have already taken place and as such will not happen again.
However, that doesn’t mean the future isn’t bright. Even halving these historic gains to just 5,000% would still turn a $20,000 investment in Broadcom into a seven-figure sum today.
Of course, even if you don’t do very well, Broadcom is still a fantastic growth investment and a great way to join the AI movement. Once again, Precedence Research predicts that global spending on AI data centers will increase from $54 billion in 2023 to $474 billion in 2034. That’s a nearly ninefold increase in the size of a market that would struggle to function without Broadcom’s solutions.
Consider the following before buying shares in Broadcom:
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. James Brumley has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Amazon, Moody’s, and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
These Beautiful Stocks Have Made Many Millionaires and Could Make More, Originally published by The Motley Fool
