Last year was quite impressive for growth stocks, especially for those tied to advanced artificial intelligence (AI) technologies. The tech-heavy Nasdaq Composite rose by about 28.6% in 2024.
Growth stocks' performances have been more mixed in the first few weeks of 2025. However, there are still a few that could surge further. Here's why these growth stocks look to be setting up for solid rallies this year.
Broadcom
Broadcom(NASDAQ: AVGO) demonstrated exceptional strength in its fiscal 2024 (which ended Nov. 3), with revenue growing 44% to $51.6 billion. Excluding the impact of its VMware purchase, the company's top line rose 9% in fiscal 2024 -- highlighting the company's potential to grow both organically and via acquisitions.
Broadcom has emerged as a major AI player thanks to its exceptional strength in custom AI accelerators (XPUs) and networking solutions. The company's AI revenue soared by 220% to $12.2 billion in fiscal 2024, and that growth is all set to continue.
The company has estimated its AI serviceable addressable market will rocket to between $60 billion and $90 billion by fiscal 2027, based just on the plans of its three major hyperscaler clients to each deploy 1 million XPU clusters by 2027. There is even more upside potential to that projection since Broadcom is already in the advanced stages of developing next-generation AI XPUs for two additional hyperscaler clients.
With the rising deployment of AI chips in large-scale XPU clusters, demand is also rising for Broadcom's networking solutions. In this sort of AI infrastructure, the level of resources that must be dedicated to networking rises. Specifically, management expects that as cluster sizes expand from 500,000 XPUs to 1 million XPUs, the share of AI hardware resources allocated to networking hardware will surge from a range of 5% to 10% now to a range of 15% to 20%.
Finally, Broadcom has completed the integration of VMware ahead of schedule while also boosting cost efficiency and profitability. The VMware unit's operating margin was 70% at the end of fiscal 2024, a significant improvement from less than 30% in pre-acquisition times. Broadcom has also succeeded in reducing VMware's quarterly spending from $2.4 billion to $1.2 billion.
Considering these many tailwinds, Broadcom seems well-poised for an impressive bull rally in 2025.
Taiwan Semiconductor
Looking at Taiwan Semiconductor Manufacturing (NYSE: TSM), there is a lot to be excited about these days. The leading third-party foundry (with a market share of nearly 65% as of the end of September) successfully expanded its scale and also improved its profitability in fiscal 2024.
While its revenue rose 30% to $90 billion, its operating margin also expanded by 3.1 percentage points to 45.7%. These are impressive numbers, especially since the company spent almost $29.8 billion in capital expenditures that year. Furthermore, TSMC expects capex of between $38 billion and $42 billion in fiscal 2025.
TSMC is also the undisputed leader in advanced semiconductor manufacturing. Its 3-nanometer (nm) process technology contributed 18% to its wafer revenue in fiscal 2024, up from 6% in 2023. Its advanced technologies segment, which includes all the chips it makes using process nodes of 7nm and smaller, accounted for 69% of the company's total wafer revenue in fiscal 2024, up from 58% in 2023. (The smaller the process node, the more component-dense and powerful the chip.)
The company is gearing up for volume production of chips using its new 2nm process technology in the second half of 2025. It has introduced N2P, an extension to its 2nm node to further boost power benefits and performance in high-performance computing and smartphone applications. TSMC is also working to introduce what it has dubbed the A16 node, which will offer further speed and power improvements over N2P technology.
Increasing demand for AI processors such as graphics processing units (GPUs), accelerators (XPUs), application-specific integrated circuits (ASICs), and high-bandwidth memory (HBM) controllers continues to be a major growth catalyst for TSMC.
In 2024, AI processors accounted for a mid-teens percentage of the company's total revenue. Management now expects revenue from AI accelerators to double in 2025, driven by demand for chips to support data center applications as well as AI applications in smartphones. Subsequently, TSMC's AI accelerator revenue is expected to grow at a compound average percentage rate in the mid-40s from 2024 to 2029.
Despite the many tailwinds for its business, TSMC trades at a reasonable price-to-sales (P/S) ratio of 10.9. Hence, TSMC is a smart pick despite the significant capital expenditures it has lined up for 2025.
MercadoLibre
Latin American e-commerce and fintech giant MercadoLibre's (NASDAQ: MELI) revenue soared by 35% year over year to $5.3 billion in the third quarter, driven mainly by strength in Brazil and Mexico.
MercadoLibre's e-commerce platform added new customers at a record-breaking pace of almost 7 million in the quarter. This can be attributed to several innovations introduced by the company, including new features in the automotive and beauty verticals, a new high-frequency category that is personalized based on each user's profile, revamping of its Meli Mas loyalty program, and an improved shipping experience. The company is focusing on expanding its fulfillment network in Brazil.
Its fintech platform, Mercado Pago, is also seeing strong momentum. What started as a simple payment processor has evolved into a comprehensive financial services platform in the still underpenetrated Latin American market. The platform reached 56.2 million monthly active users in the third quarter, up 35% on a year-over-year basis, and ended the period with assets under management of $8 billion, up 93% year over year.
Mercado Pago's credit card business is also growing at a healthy pace, with a 166% year-over-year jump in total payment volume in the third quarter. The company issued 1.5 million new credit cards in the quarter. The credit card business now accounts for 39% of its credit portfolio, up from 25% a year ago. MercadoLibre has also reduced its credit risk by moving upmarket to offer loans to low-risk clients.
Hence, MercadoLibre seems well positioned to grow rapidly in both e-commerce and fintech markets.
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Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
