2 Breakout Growth Stocks You Can Buy and Hold for the Next Decade

Now could be a great time to put some money to work in top growth stocks. The markets have a long history of growing in value for much longer stretches than when they fall. Adding shares of growth stocks that outperform coming out of a bear market can sometimes point you in the direction of a monster long-term winner.

That said, Alphabet (GOOG 9.96%) (GOOGL 10.22%) and Broadcom (AVGO 3.84%) are outperforming the market in 2023. These companies lead their respective industries in digital advertising and wireless semiconductors and could deliver terrific returns over the next decade.

Alphabet

Google parent Alphabet has outperformed the broader market this year, rising 46%, and reached another high following its second-quarter earnings report. The stock is still trading 14% off its previous high and still offers investors attractive growth prospects over the long term. 

The stock fell last year as advertising spending dried up. Inflation and other macroeconomic headwinds caused brands to pull back on ad spending, which is how Alphabet makes money from its leading search engine, YouTube, Gmail, and other apps. But the company's second-quarter report showed revenue accelerating, indicating the advertising market is starting to turn around.  

Google is one of the most recognizable brands in the world. Chrome is by far the most used internet browser, with a 63% share of the market, according to GlobalStats. It's even more dominant in search with a 92% share, while YouTube ranks alongside Netflix as the leading video streaming platform. 

These are widely used services globally, which is why advertising dollars are flowing back to the company right now. Alphabet reported Google Search revenue grew 4.7% year over year in the second quarter, accelerating from 1.8% in the previous quarter. YouTube posted a small year-over-year increase, reversing last quarter's decline.

Revenue growth should accelerate further as the ad market picks up. Alphabet was consistently growing at double-digit rates through 2021. Google Cloud is another blossoming opportunity for the company, with revenue growth clocking in at 28% year over year in the second quarter, as companies invest in applying generative-AI models to their data.

The stock might be undervalued at a forward price-to-earnings ratio of 23, which doesn't seem like much of a premium for such a dominant business. The company's improving revenue growth shows it is well-positioned to deliver returns for investors.

Broadcom

Broadcom could be a great stock for investors looking for exposure to the AI boom. The shares are up 50% this year, driven by an upbeat earnings report earlier this year that revealed how AI could have a big impact on its future revenue growth. That's because Broadcom is a leading supplier of chips for advanced networking switches that are needed for the heavy data workloads that AI processing demands.

Broadcom's revenue slowed to 8% year over year in the fiscal second quarter, down from 16% in the previous quarter. This was due to lower revenue in the wireless networking business, where Broadcom is a key supplier of chips for Apple's iPhone. This is a seasonally slow quarter for wireless networking products.

Broadcom just recently signed a multiyear deal with Apple to supply 5G radio frequency components and other products for the iPhone. Despite the lower revenue in the last quarter, the wireless business is a steady source of growth for the company. Over the last six years, wireless revenue has grown from $1.15 billion to $1.6 billion in the fiscal second quarter.  

But data center networking will become a bigger growth driver over the next decade. Networking revenue grew 20% year over year in the last quarter, representing 39% of total revenue. Specifically, demand for generative AI represents 15% of Broadcom's chip business. It was 10% last year, but management expects it to reach 25% by next year. 

The final reason to consider Broadcom stock is how its market leadership in supplying niche products for complex solutions translates to extremely high profitability. Over the last year, the company produced $17 billion in free cash flow on $35 billion in revenue. That's a free cash flow margin of almost 50%, which is rare for any business.

The company distributed 43% of that free cash to shareholders, bringing the stock's dividend to an above-average yield of 2.1%.  You won't find many AI stocks producing this level of free cash flow and paying out a generous dividend yield. Broadcom would make a great choice for investors looking for growth and income.