This Artificial Intelligence Stock Has Beaten the Market in 9 of the Past 10 Years. And It's On Track to Do It Again in 2025.

Key Points

• Broadcom stock has accumulated gains of more than 2,000% in the past 10 years.

• Strong demand from tech hyperscalers highlights both a strength and vulnerability for the stock.

• 10 stocks we like better than Broadcom ›

Investing in top growth stocks is a great way to achieve strong returns and potentially outperform the market as a whole. The S&P 500 is an index of the leading companies on the U.S. markets, and historically, it has risen by 10% per year, though that's an average including up and down years. That return is not guaranteed, but at such a high rate, an investment would double after a little more than seven years.

One artificial intelligence (AI) stock that has routinely outperformed the broad index is Broadcom (NASDAQ: AVGO).

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The semiconductor and infrastructure company has benefited from the growth in tech in recent years, and that has allowed it to outperform the market on a consistent basis. With strong gains once again so fare this year, is Broadcom still a great buy, or could it be due for a pullback?

Image source: Getty Images.

Broadcom has been a top growth stock over the past decade

Here's a look at just how well Broadcom has performed over the previous 10 years, compared to the S&P 500.

Data source: YCharts.

What's surprising is that the one year when the S&P 500 did better than Broadcom was 2019, when the index finished higher at nearly 29%, versus 24% gains for Broadcom.

The past doesn't predict the future, but the tech stock's terrific run can't be ignored. In 10 years, shares of Broadcom have risen by more than 2,000%, while the S&P 500 has increased by around 200%.

Can Broadcom's impressive gains continue?

As of the end of last week, Broadcom's stock was up around 19% for the year, which was comfortably above the S&P 500's returns of more than 6%. But with a valuation of around $1.3 trillion and Broadcom trading at 33 times its estimated future earnings (based on analyst estimates), it's not a cheap stock to own.

The biggest risk is that the company relies heavily on demand from hyperscalers. These are big tech giants that have significant infrastructure needs related to tech and AI. If they scale back on their expenditures, that could significantly weigh on Broadcom's results. The company estimates that its top five customers account for around 40% of its revenue.

The company's revenue during the most recent reported period -- which ended on May 4 -- grew by a rate of 20% year over year, as its top line came in at just over $15 billion, while profits more than doubled, rising to nearly $5 billion.

If Broadcom can continue producing strong results such as these, it wouldn't be surprising to see it outperform the market once again this year. Though that risk of hyperscalers cutting spending remains.

Is Broadcom stock a buy right now?

If you're bullish on AI and expect there to be much more growth ahead, Broadcom can make for a compelling investment to simply buy and hold. But at the same time, it's also important to consider the risks ahead, especially as tariffs and trade wars could impact growth in the tech sector in the near future.

Earlier this year, Broadcom's stock was underperforming the S&P 500 due to the uncertainty in the markets. While that looks like a distant memory right now, investors should brace for a possible slowdown for the stock as it's trading at an elevated valuation and it may be due for a decline. Its track record may be impressive, but that by no means guarantees it'll always be a market-beating stock.

I'd hold off on buying shares of Broadcom only because the markets appear to be a bit too bullish right now, and with high expectations priced in, there's a lot of downside risk that comes with owning the stock. Broadcom isn't a bad buy, but I think there are better AI stocks to invest in today.

Should you invest $1,000 in Broadcom right now?

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.