Broadcom (AVGO +2.28%) has been one of the best stocks to hold over the past decade. It has rallied by almost 4,000% during that stretch, including a return of 10x over the past five years.
Investors can't expect those types of returns from Broadcom over the next decade. The artificial intelligence (AI) chipmaker's market cap would exceed the annual U.S. GDP if the stock soared by almost 4,000%.
That's why investors look for the next Broadcom. They want to be on the ground floor before a stock rallies by 4,000% over the past decade.
Some investors refer to these types of gains as "generational returns," but such opportunities occur far more frequently than once in a generation. The jaw-dropping rallies for Tesla and Palantir Technologies are only separated by a few years.
Broadcom shares several key factors in common with other high-growth stocks that have delivered what many investors would consider generational returns. Knowing what made Broadcom into the company it is today can help you identify the next long-term winner.
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Broadcom solves an important problem
The biggest companies solve incredible problems, and Broadcom is no exception. The company has been producing semiconductor chips long before the advent of AI, and Broadcom chips were once found in every iPhone. Its tech forms the foundation that allows other companies to solve big problems.
Broadcom chips are in many computers, wireless routers, video game consoles, and other devices. Those products have significant consumer demand, but they also require chips to operate. Broadcom isn't the only chipmaker, but it is a leader in the industry. Computers and other critical products cannot function without chips.
NASDAQ: AVGO
Key Data Points
AI has increased the demand for advanced chips, and it's been a boon for Broadcom. The technology can revolutionize the world far more than the internet in its best-case scenario.
Tesla CEO Elon Musk recently shared on X that AI can solve hunger, disease, and poverty. Sundar Pichai, the CEO of Google and its parent company, Alphabet, also said that AI is "more important than fire or electricity."
If AI is that important, then chipmakers like Broadcom are that important, by extension. Broadcom powers the technology that business leaders have said can solve hunger and is more important than electricity. Very few companies are solving that type of problem, and that's why Broadcom is one of the largest corporations on the planet.
Considering which companies are solving problems that can become consequential may lead to the next Broadcom.
The chipmaker serves large customers
There are two ways to grow a business. You can either focus on serving a few high-paying customers or offer products or services to a large customer base. While Walmart does a good job of attracting millions of people to its stores each day, Broadcom doesn't have as many customers.
The company also works with smaller enterprises, but most of its revenue comes from large corporations, especially tech giants that want chips. Broadcom has a deep partnership with Google that includes designing custom AI chips, and that got Meta Platforms' attention. Facebook's parent company is discussing a multibillion-dollar deal for Google's chips, which bodes well for Broadcom.
When Broadcom signs a new customer, it can result in a multibillion-dollar deal, and such transactions can significantly boost the stock price. Investors saw that play out recently, with Broadcom soaring by more than 10% on news that Meta Platforms was in talks to buy Google's AI chips.
Examining how the largest companies allocate their resources can reveal promising growth stocks, especially when they are just starting to gain momentum.
The company has used acquisitions to fill in gaps
Broadcom has made several acquisitions over the years that prepared it for the AI boom. Ironically, one of the biggest acquisitions was when Avago acquired Broadcom for $37 billion and rebranded as Broadcom. That's why Broadcom trades under the ticker AVGO instead of a symbol that more closely resembles Broadcom's spelling.
That decision made Broadcom more competitive against other chipmakers and significantly helped in attracting large customers. The firm also acquired semiconductor firm LSI Corporation for $6.6 billion in 2013. More recently, Broadcom acquired VMware to expand its software business.
Other tech giants have acquired their way to more market share. Google bought YouTube to get an early start in video content, Amazon bought Whole Foods to boost its grocery store footprint, and Meta Platforms bought Instagram to capitalize on a high-engagement social network.
Each of those companies has made additional acquisitions and investments. It's part of becoming a corporate giant like Broadcom.
This AI stock checks the boxes to become the next Broadcom
Broadcom has long-term customers and offers essential technology, and Iren (IREN 3.75%) also checks those boxes. Instead of creating AI chips, Iren creates AI data centers at scale and just signed a five-year, $9.7 billion deal with Microsoft. It also supplies energy, which is currently the major bottleneck in AI development.
Iren already has multiple gigawatts and AI data centers to support additional deals, and co-CEO Dan Roberts recently told CNBC that the company "can't meet demand fast enough." That's a good bullish indicator, especially since most AI demand is coming from tech giants with lots of money to spend.
NASDAQ: IREN
Key Data Points
Iren's data centers are optimized for the rigorous energy demands of AI tools and software. Regular data centers aren't good enough for this new tech boom because they can't handle AI workloads. Iren is still a small company with a market cap below $15 billion, but it's solving the same exact problems as Broadcom.
As Iren grows, expect the AI data center provider to acquire smaller companies to increase its market share. That will further put it on the path to becoming the next Broadcom.
