The U.S. stock market has proved quite resilient in 2024 despite seeing various fluctuations and pressures. Following an exceptionally strong 2023, the broad-based S&P 500 index has posted a 7.5% return up to now in 2024.
While investors have now began worrying just a few pullback consequently of high rates of interest and geopolitical risks, there continues to be money to be made on the market. Long-term investors can pick up small stakes in fundamentally strong growth corporations which will be riding solid secular tailwinds to frequently construct wealth.
Here’s why growth stocks Broadcom (NASDAQ: AVGO) and Nu Holdings (NYSE: NU) each fit these criteria and should prove exceptional buys in the long run.
Broadcom
A primary high-speed networking solutions provider, Broadcom came out with solid ends within the recent quarter (the fiscal 2024 first quarter ending Feb. 4), with each revenue and earnings easily surpassing consensus estimates. Investors, nevertheless, seem like disillusioned with the company’s weaker-than-expected guidance for fiscal 2024 and this has affected the company’s share price performance before now month. Despite this, there are still several reasons for the long-term investor to similar to the stock.
First, Broadcom is witnessing solid demand for its artificial intelligence (AI)-optimized accelerators and AI-related networking components comparable to Tomahawk 5 800G switches, Ethernet, digital signal processing (DSP) platforms, and optical components from hyperscaler customers and large-scale enterprises deploying on-premise AI data centers. This is obvious considering that the company’s AI revenue quadrupled yr over yr to $2.3 billion in the first quarter. Broadcom now expects AI revenue to account for nearly 35% of its fiscal 2024 revenue at over $10 billion, significantly up from the prior estimate of 25%.
Second, it’s vitally difficult for brand spanking latest competitors to enter the custom AI accelerator business, since it requires corporations to collaborate with large clients over multiple years and create a supporting software ecosystem. Broadcom has partnered with two large hyperscalers for multiple years. Hence, the company is well positioned to capitalize on the expansion inside the customized AI accelerator market.
Third, the acquisition of VMware is playing a pivotal role in driving up Broadcom’s infrastructure software revenue. In the first quarter, the company’s infrastructure revenue was up by 153% yr over yr to $4.6 billion. VMware accounted for $2.1 billion in revenue during its 10.5-week-long contribution to Broadcom’s first-quarter results (since the acquisition was achieved in November 2023). The company expects VMware’s revenue to grow at a double-digit percentage sequentially throughout fiscal 2024.
Broadcom’s VMware strategy mainly rests 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 create an on-premise self-service cloud platform alternative to most of the people cloud, VCF is allowing corporations to run high-performance computation and AI workloads without compromising privacy. Plus, VMware’s partnership with Nvidia will also be enabling customers to run advanced AI models with VCF (using the computing power of Nvidia’s advanced AI chips).
In all fairness, Broadcom’s price-to-sales (P/S) ratio of 16.5x is sort of high-priced as compared with its historical five-year average valuation of 9.2x. Nonetheless, despite this, considering the many solid tailwinds, Broadcom appears to be well poised for a robust growth trajectory within the approaching months.
Nu Holdings
Nu Holdings is an all-digital bank offering quite a lot of monetary solutions comparable to bank cards, savings and personal accounts, lending and investment solutions, and insurance inside the Latin American markets of Brazil, Mexico, and Colombia.
With a high percentage of the young population (19 to 30 years) who’ve rapidly increasing spending and investing needs and widespread penetration of the online, Latin America is proving to be an exceptional opportunity for the digital bank.
Nu’s customer base has seen rapid expansion, growing 26% yr over yr to 93.9 million customers at the highest of 2023. Brazil added a median of 1.3 million customers monthly in 2023 and reached a whole customer count of 87.8 million customers. Nonetheless, Mexico and Colombia are relatively latest markets, with 5.2 million and over 800,000 customers, respectively.
Nu has been quite successful in cross-selling and upselling to existing customers, which in turn has helped create a sticky customer base. This is apparent considering that its energetic customers were using a median of 4 products inside the fourth quarter. The company’s average revenue per energetic customer (ARPAC) has also grown by 23% yr over yr (at a relentless currency rate) to $10.6 at the highest of the fourth quarter. Despite this, the company’s cost to serve per customer has remained regular at $0.90 on a year-over-year basis.
Nu’s financial performance inside the recent fourth quarter has also been stellar. Revenue grew by 57% yr over yr (at constant currency rates) to $2.4 billion, while net income soared by 489% yr over yr to $360.9 million.
Nonetheless, the company isn’t resting on laurels and is specializing in further bolstering growth in 2024. Nu is aiming to scale up secured lending in Brazil and increase its share of the high-income segment in Brazil. Plus, it’s working on scaling in Mexico by leveraging the successful launch of its Cuenta Nu digital savings account in 2023.
Nu currently trades at barely below 7 times trailing-12-month sales. With analysts expecting the company’s revenue to grow by a solid 38% yr over yr in fiscal 2024, this valuation seems quite low. Hence, considering the multiple tailwinds, solid financials, and significantly low valuation, Nu appears to be a wise pick now.
Do you will have to take a position $1,000 in Broadcom immediately?
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Manali Pradhan has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends Nvidia. The Motley Idiot recommends Broadcom and Nu Holdings. The Motley Idiot has a disclosure policy.
2 Growth Stocks to Buy Like There’s No Tomorrow was originally published by The Motley Idiot