Investing in the tailwinds behind technological innovation can produce wealth-building returns in the stock market. But just because a stock is soaring in value doesn’t mean it’s worth buying. It’s always important to consider a company’s valuation relative to business fundamentals.
To aid you in your search, here are two stocks I would buy today with my money, and one I would avoid.
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Spending on data center infrastructure is booming. Companies are upgrading hardware and components to support artificial intelligence (AI) workloads. Broadcom (NASDAQ: AVGO) benefits from this trend as a leading supplier of semiconductors, networking hardware, and software solutions for data centers. The stock nearly doubled over the last 12 months but still trades at a reasonable valuation that can support excellent returns over the next several years.
Broadcom’s components are a staple in smartphones. Apple signed a new long-term deal with the chip company last year to supply 5G radio frequency components for the iPhone maker. But Broadcom is seeing monstrous growth for its custom AI accelerators, with sales up 3.5 times year over year in the last quarter.
Revenue from other markets, including wireless and broadband, are not performing as well, but these markets are expected to turn around. Management noted stabilizing performance in non-AI semiconductor products, which could turn into a catalyst in 2025, as more AI-enabled devices become available. Wall Street analysts expect Broadcom’s earnings to be up 28% next year and grow at an annualized rate of 20% in the coming years.
That’s enough growth to support the share price that currently trades at a forward price-to-earnings (P/E) ratio of 27. Broadcom is one of the strongest tech companies in the world. It delivered steady growth in revenue and profits for many years, which has funded a growing dividend to shareholders. The stock’s current dividend yield is 1.2%.
The most in-demand components for working with…
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