Investing in quality growth stocks could help you deliver outsized gains and beat the broader markets over time. But it’s essential to identify companies that are part of rapidly expanding addressable markets, armed with strong balance sheets, and poised to improve profit margins at scale.
Here we take a look at two growth stocks that can potentially turn a $50,000 investment into $1 million over time.
Microsoft stock
One of the top-performing stocks in the past decade, Microsoft (NASDAQ:MSFT) has a stellar record of improving shareholder wealth. MSFT stock is up 1,000% in the last 10 years and is well poised to deliver game-changing returns to investors.
Despite its massive size, Microsoft easily switched towards a subscription-based model in recent years. It is among the major players in key verticals including gaming, enterprise software, cloud computing, and artificial intelligence.
In the March quarter, Microsoft increased its sales by 10% year over year despite a weak global environment. The cloud business is expected to be a key driver for Microsoft as Azure increased sales by 27% year over year in fiscal Q2 (ending in June). The cloud infrastructure market is valued at US$237 billion, indicating Microsoft ended the quarter with a share of 23%, up from 15% in 2017.
Microsoft aims to build Azure into an “AI supercomputer of the world.” It has invested billions of dollars in OpenAI and announced its first top-5 supercomputer in 2020. OpenAI has successfully leveraged the widening infrastructure of Microsoft to train its models and deploy them on Azure, powering path-breaking products such as Copilot, DALL E 2, and ChatGPT.
In fact, ChatGPT has already onboarded 100 million users and has an addressable market of US$1 trillion. This revolutionary product can easily deliver billions of dollars in sales and profits for Microsoft in the upcoming decade.
Microsoft continues to deliver solid profits and reported free cash flow of US$57 billion in the last 12 months, indicating a margin of more than 25%. MFST also pays investors an annual dividend of US$2.72 per share, translating to a forward yield of 0.9%.
Shopify stock
Another high-growth tech stock is Shopify (TSX:SHOP), the second largest e-commerce platform in Canada and the U.S. Shopify enables merchants to set up an online presence and drive e-commerce sales higher. It is now focusing on vertical integration and building a network of fulfillment centers to help its merchant base with last-mile delivery and optimizing the supply chain.
While revenue growth has cooled down post the COVID-19 pandemic, Shopify is on track to increase sales by 21% to $9 billion in 2023 and by 20% to $10.9 billion in 2024. Comparatively, its adjusted earnings are forecast to expand from $0.05 per share in 2022 to $0.28 per share in 2024.
With more than $5 billion in cash and $913 million in debt, Shopify has enough resources to reinvest in organic growth and accretive acquisitions. It is a major player in the e-commerce space. SHOP stock currently trades at nine times forward sales, which is quite steep.
But, growth stocks command a premium valuation making Shopify a top long-term buy in May 2023.
