Being patient has paid off for investors during the past decade, as the S&P 500 has soared over 262% and it's close to setting new records once again. But these mammoth gains wouldn't be possible without the contribution of technology stocks. Many people don't realize that although the benchmark is comprised of the 500 largest stocks on the market, over 27% of those companies are tech stocks, the largest component of the index.
In fact, the Nasdaq 100 Technology Sector index has far outperformed the S&P 500 over the last 10 years, by more than two to one. To make real money on Wall Street, investors need to put time on their side. If generating serious wealth is one of your financial goals, it's perfectly achievable by practicing a buy-and-hold strategy. A great place to start would be with the following high-growth tech stocks.
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1. Nvidia
Video games remain the heart of Nvidia (NVDA 0.91%), with graphics processing units (GPUs) for gaming generating 47% of the $6.5 billion revenue for the second quarter. With the gaming GPU market forecast to grow at a compound annual rate of 14% through 2026, according to Mordor Intelligence, Nvidia could be generating $20 billion a year in this segment alone if its sales keep pace.
Because it has an 83% market share of the discrete gaming GPU market, there's no reason it shouldn't be able to achieve that. Yet Nvidia also has its finger in the pie of artificial intelligence, data centers, and automobiles. It is using AI to make gaming even better and more immersive. Its deep learning super sampling (DLSS) technology uses AI to take low-resolution images and scale them up to high resolutions for display on high-res screens. Nvidia is also using it on its Morpheus platform to allow for cybersecurity protection of data.
Data center revenue soared 35% year over year last quarter and should grow to actually become Nvidia's largest segment by 2025. Its $7 billion acquisition of Mellanox completed in 2020, helped position Nvidia to be a leading supplier for networking hardware. And we haven't even begun to scratch the surface yet on its Drive AV platform for autonomous vehicles, or Omniverse, the first real-time 3D simulation and collaboration platform. These components have contributed to the nearly 300% stock growth over the past three years, and it doesn't seem like it'll stop anytime soon.
Wall Street forecasts Nvidia will see revenue growth of 25% annually for the next five years, hitting $51 billion in 2026 with earnings expected to grow even faster, at 26% annually, to $7.73 per share. The shift to digital advertising and programmatic delivery will continue to boost its top and bottom lines.
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2. The Trade Desk
At-home entertainment continues to migrate from traditional cable networks to connected TV and internet-based offerings. This opens the pathway for The Trade Desk (TTD 1.24%) to further build out its dominant programmatic ad buying platform. Through the use of bid factor technology to value ad impressions, The Trade Desk's system allows brands to collect better data on potential buyers in real-time. This ensures their ads are placed appropriately based on that data and its clients are responding.
Revenue spiked 101% in the second quarter, raking in $280 million. And over the first six months of 2021 revenue was 78% higher than in the same period in 2019. Over the last four years, revenue has increased nearly 300%. Adjusted EBITDA margin also rose in the second quarter, hitting 42%, even better than the pre-pandemic rate of 36% it achieved in the second quarter of 2019. Looking ahead, The Trade Desk sees itself maintaining that breathless pace, with third-quarter revenue and adjusted EBITDA rising at least 31% and 30%, respectively, over the year-ago period.
The Trade Desk serves approximately 875 clients, primarily ad agencies, which spend a lot of money on it. CEO Jeff Green told analysts, "the number of brands spending more than $1 million in CTV [connected television] on our platform has already more than doubled year over year." With a performance like that, it's no wonder the stock has grown over 560% over the past three years.
Equally important, the clients stick around year after year. The Trade Desk's customer retention rate has been over 95% for seven consecutive years. But where the company is likely to see much of its future growth attained is in international markets. Non-North American revenue now represents 13% of its total revenue compared to 6.5% in 2015, and with two-thirds of the world's ad spend coming from outside of North America, The Trade Desk still has a substantial runway to expand.
At 80 times earnings and 88 times the free cash flow it produces, the ad-buying platform is not cheap. Yet programmatic purchases amount to only one-fifth of the spend on advertising globally, suggesting this leading player has a lot of potential to grow into its valuation.
