The Smartest Growth Stock to Buy With $1,000 Right Now

Broadcom (NASDAQ: AVGO) doesn't have the same name recognition as some of its peers, like Nvidia, but that doesn't make the company any less influential in the artificial intelligence (AI) space. The company is making huge waves in the AI semiconductor market as companies ramp up spending to build new AI infrastructure. It also has the added benefit of delivering impressive financial results.

Even after Broadcom's share price surge over the past few years, its stock looks well-priced, considering its growth opportunities. Let's take a closer look at what's happening with Broadcom and why it might be a good place to invest $1,000 right now.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. See the 10 stocks »

1. It's tapping into rising AI demand

One of Broadcom's biggest opportunities comes from its application-specific integrated circuits (ASICs), which are used in AI data center infrastructure. Dominant tech companies, including Alphabet and Meta Platforms, use Broadcom's chips for some of their AI needs, and a projected rise in spending could boost demand further.

For example, Nvidia CEO Jensen Huang says tech leaders will spend an estimated $2 trillion over the next few years to build AI data center infrastructure. This opportunity is more than just a potential growth area for Broadcom -- the company is already seeing significant financial benefits from it.

Broadcom's 2024 AI revenue soared 220% to $12.2 billion and represented nearly 24% of the company's total sales last year. With companies continuing to ramp up spending to compete for AI dominance, Broadcom could see further gains from its semiconductor business.

Broadcom CEO Hock Tan highlighted this opportunity on the company's recent earnings call, saying, "[W]e see our opportunity over the next three years in AI as massive." He added that companies have begun to see their need for custom AI accelerators, saying, "For each of them, this represents a multiyear, not a quarter-to-quarter journey."

2. Broadcom is profitable

Many high-flying tech stocks are benefiting from AI, but not all of them have the same solid financial foundation as Broadcom. The company is consistently profitable and reported impressive non-GAAP (generally accepted accounting principles) earnings per share of $4.87 in 2024. Broadcom also had an impressive $19.4 billion in free cash flow at the end of the year.

Broadcom benefits from its high-margin semiconductor and infrastructure software business, and at the end of the fourth quarter, its gross margins were nearly 77%. That's great news for current Broadcom shareholders and potential investors because it shows the company is turning rising AI chip and software sales into profits -- not all AI companies are having the same success.

With AI spending ramping up, Broadcom's bottom line will likely continue benefiting. While there's no guarantee of its success, Broadcom's unique position in ASICs gives it a long-term opportunity to tap into artificial intelligence infrastructure spending over the next few years.

One thing to keep in mind before buying Broadcom

Broadcom's shares have soared 274% over the past three years (as of this writing). That's pushed up the valuation of Broadcom's stock, giving it a forward price-to-earnings ratio of 34.6. While it's not wildly expensive, Broadcom's stock is more pricey than peers like Nvidia, which has a forward P/E of 27.2.

That doesn't mean Broadcom isn't a good buy -- it's just a reminder that with any AI stock right now, it's worth considering how much of a premium you're willing to spend in this space. I still think Broadcom has room to run as it taps further into a broadening AI market, but more conservative investors may want to add a small position to their portfolio, adding more shares if Broadcom's stock takes a dip.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $323,686!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $44,026!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $545,283!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

Learn more »

*Stock Advisor returns as of February 3, 2025

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.