Unlocking Wealth-Building Returns in the Stock Market
Investing in companies that are driving technological innovation can lead to substantial returns in the stock market. However, it’s crucial to look beyond a stock’s soaring value and examine its underlying fundamentals.
Two Stocks to Buy Today
Data Center Boom
Spending on data center infrastructure is surging, driven by the growing demand for artificial intelligence (AI) workloads. Broadcom, a leading supplier of semiconductors, networking hardware, and software solutions, is well-positioned to benefit from this trend. Despite its stock nearly doubling in value over the past year, it still trades at a reasonable valuation, making it an attractive investment opportunity.
AI Accelerators Drive Growth
Broadcom’s custom AI accelerators have seen sales surge 3.5 times year over year, and its components are a staple in smartphones. The company’s revenue from other markets, including wireless and broadband, is expected to turn around, providing a potential catalyst in 2025.
Strong Earnings Growth
Wall Street analysts expect Broadcom’s earnings to increase by 28% next year and grow at an annualized rate of 20% in the coming years. With a forward price-to-earnings ratio of 27, the stock’s current valuation can support excellent returns over the next several years.
Nvidia: The Dominant AI Chip Supplier
Nvidia, the leading supplier of graphics processing units (GPUs), is growing revenue at triple-digit rates, driving exceptional returns for investors. The company’s advanced AI chips command high margins, generating significant profits.
Cloud Service Providers Drive Demand
Demand from cloud service providers is driving close to half of Nvidia’s data center revenue, with foreign countries investing in sovereign AI infrastructure also contributing to growth. Healthcare is emerging as a large and growing market for the company, with AI bringing major changes in medical imaging and patient care.
Attractive Valuation
Nvidia’s stock has had an incredible run, but its forward P/E of 33 on next year’s earnings estimate still looks attractive relative to earnings growth estimates. Analysts expect Nvidia’s earnings to grow at an annualized rate of 57% in the coming years, making it an attractive investment opportunity.
One Stock to Avoid
MicroStrategy: A Tracking Stock for Bitcoin?
MicroStrategy shares have climbed 406% over the last year, largely due to the company’s adoption of Bitcoin as its primary treasury reserve asset. However, the company’s core business is struggling, with total revenue down 10% year over year in Q3 and a net loss of $340 million.
Overvalued Relative to Financials
MicroStrategy’s shares look overvalued relative to the company’s financials, with investors paying a big premium for the company’s Bitcoin holdings. The company’s willingness to issue debt to finance its Bitcoin investments, despite weak performance from its core business, is alarming.
A Safer Option
Investing in a spot Bitcoin exchange-traded fund (ETF) seems like a safer option for investors interested in the cryptocurrency, considering MicroStrategy’s weak financials and debt financing.
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