Why Growth Stocks Might Be Worth Considering

Investing in growth stocks often attracts those looking for significant returns. While dividend stocks can provide stability and ongoing income, growth stocks tend to outshine them when it comes to potential profits.

Identifying which growth stocks will actually rise can be tricky. For instance, just five years ago, ChatGPT was not widely recognized. Though generative AI was right on the horizon with the promise of transforming industries, its full impact wasn’t apparent. Now, however, its emergence has significantly affected stock values, pushing many stocks upwards dramatically.

Here are three growth stocks that have seen impressive returns over the past five years: Nvidia, Broadcom, and Palantir Technologies. If you had invested $10,000 in each of these stocks five years back, you’d be looking at a portfolio worth over $260,000 today. Let’s dive into how these stocks climbed, why they’re performing well, and if they still make for good investments.

Nvidia

Nvidia has been at the forefront of the AI revolution. Their graphics processing units (GPUs) have become vital for companies working on AI technologies and have seen massive demand lately. Despite a slight slowing of growth, the latest quarter still showcased an impressive 73% growth rate.

Over the past five years, Nvidia’s stock has skyrocketed nearly 1,200%. This means that a $10,000 investment five years ago would be worth about $126,000 today. As a result, Nvidia has become the most valuable company globally, with a valuation of roughly $4.4 trillion.

That said, there’s a caveat: at its current high price, it’s somewhat unlikely Nvidia will continue to achieve such explosive profits. Still, the company dominates the semiconductor arena, and with a forward price-to-earnings ratio of 22, it doesn’t seem excessively valued. So, it might still be a decent buy, although your expectations for future growth may need some adjustment.

Broadcom

Another semiconductor company benefiting from AI trends is Broadcom. As businesses search for alternatives to Nvidia’s pricier chips, Broadcom is collaborating with major tech players who are looking to develop their own custom AI solutions. This strategy has paid off, with Broadcom’s revenue reaching just under $64 billion in its most recent fiscal year—almost double from a few years ago.

In five years, Broadcom’s stock has appreciated over 590%, transforming a $10,000 investment into more than $69,000 today. This surge has boosted its market capitalization to about $1.6 trillion, positioning it as one of the leading technology companies globally.

Currently, Broadcom’s forward P/E ratio sits at 28, indicating it’s a bit pricier than Nvidia. While it seems to hold promise for long-term investors, it carries risks due to its reliance on the strong market demand from tech businesses. A slowdown in AI investments could hamper Broadcom’s growth and affect those willing to pay higher premiums for its stock.

Palantir Technologies

Distinct from the chipmakers, Palantir Technologies focuses on data analytics. Its AI platforms help companies optimize various processes. Known for its ties to government entities, Palantir has expanded its business across many sectors. CEO Alex Karp highlights the company’s impressive Rule of 40 score—recently at 127%, which reflects both earnings and revenue growth.

Over the past five years, Palantir’s stock has risen nearly 560%, meaning a $10,000 investment would now be worth around $65,000. Though this is the lowest return on our list, it’s still quite remarkable. If you total your investments in these three stocks, the total value would surpass $260,000.

However, there are concerns with Palantir. Its stock might be overvalued at this point, trading at more than 230 times its trailing earnings. Even the forward P/E ratio is substantially above 100. Investing in Palantir now could expose you to potential future declines. This is one stock from the list that I wouldn’t personally buy right now.