As the name suggests, growth stocks are judged on their ability to deliver significant gains. The ones that do so consistently, year after year, are usually rewarded with a much higher share price.
Here, I’ll look at a pair of US-listed growth shares that have been marching upwards for years. But in the fourth quarter of 2024, they did the business again and were duly rewarded with further price gains.
Looking at their dominant competitive positions today, I think both are set up for further market-beating performances over the long term. I feel both are worthy of further research.
Intuitive Surgical
The first is robotic-assisted surgery pioneer Intuitive Surgical (NASDAQ: ISRG).
The stock was already up more than 150% in the five years prior to 15 January when the company released a Q4 trading update. Yet the market’s been happy to add another 12% after Intuitive said it expects 25% top-line growth (about $2.41bn) rather than Wall Street’s 14%.
This surprise beat came after it placed 493 of its da Vinci surgical systems during the quarter, including 174 of its latest da Vinci 5 robots. This next-generation iteration has 10,000 times the computing power of its predecessor!
For the full year, Intuitive placed 1,526 da Vinci systems, an 11% increase, taking its total installed base to about 10,000. And it expects full-year revenue of around $8.35bn, a 17% rise.
This is encouraging for shareholders due to the firm’s razor-and-blades business model. The more surgical robots it places, the more revenue it gets from selling instruments and accessories needed to run them. Most of the company’s revenue is recurring.
One key risk here would be another pandemic. During the last one, the company’s revenue declined significantly as operations were delayed or cancelled. Also, trading at 78 times forward earnings, this high-quality stock’s far from cheap.
However, the company remains a global leader in the robotic-assisted surgery space, and the long-term future continues to look very bright.
TSMC
The second company that released blowout Q4 numbers was Taiwan Semiconductor Manufacturing (NYSE: TSM). The stock’s up 9% since the chipmaking giant reported $26.9bn in quarterly revenue (up 38%) and a 57% rise in net profit ($11bn). Both figures beat Wall Street’s expectations.
Many tech firms outsource their chip manufacturing to TSMC, including Apple, Nvidia, Advanced Micro Devices, Broadcom, and Arm Holdings. And it’s custom AI chips that are really driving growth, with revenue from artificial intelligence (AI) accelerators more than tripling in 2024.
The firm’s now predicting revenue will grow at a five-year compound annual growth rate (CAGR) of 20%!
One challenge would be an unexpected slowdown in AI spending, especially as many of TSMC’s other markets are weak right now (notably smartphones and electric vehicles). It’s really the insane growth of AI that’s offsetting this weakness.
As for valuation, the forward P/E ratio’s 25. That strikes me as reasonable for a dominant company growing at 20% a year and capturing around 90% of high-performance computing chip orders.
Looking ahead, the demand for semiconductors is only likely to increase as megatrends like AI, cloud computing, 5G, electric vehicles and robotics play out. TSMC’s perfectly placed to benefit as the chip manufacturer of choice for many blue-chip firms.
