In This Article:
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Broadcom stock has accumulated gains of more than 2,000% in the past 10 years.
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Strong demand from tech hyperscalers highlights both a strength and vulnerability for the stock.
Investing in top growth stocks is a great way to achieve strong returns and potentially outperform the market as a whole. The S&P 500 is an index of the leading companies on the U.S. markets, and historically, it has risen by 10% per year, though that's an average including up and down years. That return is not guaranteed, but at such a high rate, an investment would double after a little more than seven years.
One artificial intelligence (AI) stock that has routinely outperformed the broad index is Broadcom (NASDAQ: AVGO).
The semiconductor and infrastructure company has benefited from the growth in tech in recent years, and that has allowed it to outperform the market on a consistent basis. With strong gains once again so fare this year, is Broadcom still a great buy, or could it be due for a pullback?
Here's a look at just how well Broadcom has performed over the previous 10 years, compared to the S&P 500.
| Year | S&P 500 Return | AVGO Return |
|---|---|---|
| 2024 | 23.31% | 107.69% |
| 2023 | 24.23% | 99.64% |
| 2022 | (19.44%) | (15.97%) |
| 2021 | 26.89% | 51.97% |
| 2020 | 16.26% | 38.55% |
| 2019 | 28.88% | 24.28% |
| 2018 | (6.24%) | (1.02%) |
| 2017 | 19.42% | 45.33% |
| 2016 | 9.54% | 21.78% |
| 2015 | (0.73%) | 44.30% |
Data source: YCharts.
What's surprising is that the one year when the S&P 500 did better than Broadcom was 2019, when the index finished higher at nearly 29%, versus 24% gains for Broadcom.
The past doesn't predict the future, but the tech stock's terrific run can't be ignored. In 10 years, shares of Broadcom have risen by more than 2,000%, while the S&P 500 has increased by around 200%.
As of the end of last week, Broadcom's stock was up around 19% for the year, which was comfortably above the S&P 500's returns of more than 6%. But with a valuation of around $1.3 trillion and Broadcom trading at 33 times its estimated future earnings (based on analyst estimates), it's not a cheap stock to own.
The biggest risk is that the company relies heavily on demand from hyperscalers. These are big tech giants that have significant infrastructure needs related to tech and AI. If they scale back on their expenditures, that could significantly weigh on Broadcom's results. The company estimates that its top five customers account for around 40% of its revenue.