Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) and MercadoLibre (NASDAQ:MELI) recently reported strong second-quarter earnings, beating Wall Street's expectations in both cases. More importantly, these stocks have already been great long-term investments, with both outperforming the S&P 500 over the past one, three, and five years.

I expect that outperformance to continue. Alphabet is riding the tailwinds of digital advertising and artificial intelligence (AI), while MercadoLibre is disrupting the commerce and payments industries in Latin America.

Here's what investors should know.

Woman using a mobile phone, overlaid with various digital icons (shopping, search payments, maps, etc.)

Image source: Getty Images

Alphabet

In 2020, Forbes named Alphabet's Google the second most-valuable brand in the world, and it's easy to see why. The company's search engine currently holds 92% market share, its Android mobile operating system holds 72% market share, and its Chrome web browser holds 65% market share. In short, Google has become the gateway to the internet.

Of course, that gives the company a significant advantage. Each of these products allows Google to capture troves of user data, which can then be used to deliver targeted ads across devices. In fact, according to eMarketer, Google will capture nearly 29% of all digital ad spend in 2021.

Not surprisingly, Alphabet's leadership in this industry has translated into impressive financial results over the long term, especially considering its $1.8 trillion market cap.

Metric

Q2 2018 (TTM)

Q2 2021 (TTM)

CAGR

Revenue

$123.9 billion

$220.3 billion

21%

Free cash flow

$21.3 billion

$58.5 billion

40%

Source: Ycharts. TTM = trailing 12 months. CAGR = compound annual growth rate.

Alphabet is well positioned to maintain its dominance in search. The company recently unveiled a new technology called the multitask unified model (MUM), a type of AI that can both understand and generate language. Notably, MUM is 1,000 times more powerful than the previous model, and the company expects to roll out this upgrade in the coming months and years.

What's the end goal? When you query Google with complex questions, the company wants to provide expert-level answers. For instance, you might eventually be able to take a picture of your hiking boots and ask Google: "Can I use these to climb Mount Kilimanjaro?" And the search engine will then answers yes or no, while also directing you to a list of recommended equipment.

Remember, Google's dominance in search makes the company a key player in the digital ad industry, a market that's expected to reach $645 billion by 2024. That's why this growth stock looks like a smart investment.

Confident-looking woman, with upward-trending arrows overlaid on the image.

Image source: Getty Images

MercadoLibre

MercadoLibre is the leading e-commerce and fintech platform in Latin America, one of the fastest-growing economies in the world. In fact, the company's online marketplace receives roughly 667 million visits per month, nearly four times as much traffic in the region as second-place Amazon.

That scale creates a self-reinforcing network effect: As more consumers shop on the marketplace, merchants benefit from a greater number of potential buyers; and as more merchants list items on the marketplace, consumers benefit from a wider selection. This virtuous cycle should keep the company ahead of its rivals for the foreseeable future.

To reinforce that advantage, MercadoLibre also provides its merchants with value-added services like fulfillment and logistics through Mercado Envios, lending through Mercado Credito, and digital advertising through MercadoLibre Publicidad. In short, the company offers an end-to-end solution for modern commerce.

That value proposition has translated into strong financial results.

Metric

Q2 2018 (TTM)

Q2 2021 (TTM)

CAGR

Revenue

$1.3 billion

$5.5 billion

61%

Free cash flow

$62.8 million

$182.4 million

43%

Source: Ycharts. TTM = trailing 12 months. CAGR - compound annual growth rate.

During the most recent quarter, MercadoLibre reached 76 million active users, up 47% from the previous year. That growth is impressive, but it also illustrates the enormous size of the company's market opportunity. Specifically, MercadoLibre operates in 18 countries across Latin America, serving a population of 638 million. Put another way, just 12% of people in these geographies currently use MercadoLibre's platform. 

As e-commerce and digital payments continue to gain traction, the company should see an uptick in demand. That's why you should consider buying this red-hot growth stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.