Even as the overall market continues to rise to new record levels, opportunities remain if one looks carefully. There are still some brilliant growth stocks investors can buy, even as they trade near their highs. Let's look at two to buy and hold for the long term.
Broadcom
Perhaps no stock is as well-positioned in the semiconductor space at the moment as Broadcom (AVGO 2.93%). While Nvidia is the clear market leader in artificial intelligence (AI) accelerators with its graphics processing units (GPUs), Broadcom is the company that large hyperscalers (companies that own large data centers) are increasingly turning to in an effort to find a cheaper alternative.
While Broadcom makes a variety of chips and components, its biggest opportunity lies with what are called ASICs (application-specific integrated circuits). Unlike traditional chips that can be programmed, ASICs are preprogrammed for specific tasks before they are made. While this affords less flexibility, these chips often can better perform the tasks for which they were designed and consume less power in the process.
NASDAQ: AVGO
Key Data Points
Broadcom played a major role in helping Alphabet develop its highly praised Tensor Processing Units (TPUs), which has led others to seek its help designing their own custom AI chips. The company believes its first three customers, which also include Meta Platforms and TikTok owner ByteDance, to be between a $60 billion and $90 billion opportunity in its fiscal 2027. Meanwhile, a fourth mystery customer, which could be Apple, has placed a $10 billion order for next year.
Broadcom has also struck a deal with OpenAI, where it will supply it with chips that can handle 10 gigawatts of power over through 2029. With 1 gigawatt of power generally equating to around $35 million worth of chips, this could be a $100 million-a-year opportunity for Broadcom over the next few years.
Given that Broadcom is on pace for just over $63 billion in total revenue this fiscal year, it just has an enormous opportunity in front of it. Custom chips look particularly well positioned as the market starts to turn to inference, giving Broadcom a long runway of growth ahead of it.
Image source: Getty Images.
Taiwan Semiconductor Manufacturing
As the battle between GPUs and ASICs heats up, Taiwan Semiconductor Manufacturing (TSM 3.69%) is set to win no matter which becomes the preferred chip. The reason is that its fabs are needed to make both. The company is the leading manufacturer of advanced chips, and it's not even really close at this point.
To continue to push chip technology forward, chipmakers need to fit more transistors onto a chip in order to increase power and improve power efficiency -- this is referred to as shrinking node sizes.
As competitors have struggled to achieve high yields (producing a high percentage of chips without defects) at scale, TSMC's technological expertise in this area has shone through. This has made the company not only the go-to manufacturer for advanced chips, but also an integral partner to most chipmakers. It's also given it strong pricing power, which has helped it lift its gross margin.
NYSE: TSM
Key Data Points
As companies like Nvidia and Broadcom increase their chip supplies, they do so in conjunction with TSMC, with whom they need to work to secure capacity. This gives TSMC great visibility into the future growth of the industry. Currently, the company is projecting that AI chips will grow at a mid-40% compound annual growth rate (CAGR) over the next five years.
With AI chip growth alone, TSMC is well-positioned to continue to see strong growth. However, the opportunity could become even bigger if more nascent technologies, such as autonomous driving, robotics, and quantum computing, become mainstream, as they will also need a lot of advanced chips.
