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2 Unstoppable Stocks to Buy Now and Hold for the Next Decade

By Trevor Jennewine – Oct 29, 2021 at 9:15AM

Key Points

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These companies could help you build significant wealth.

The stock market is among the best ways to build wealth, but there's no one-size-fits-all strategy. For instance, an exchange traded fund (ETF) offers instant diversification, and buying an ETF that tracks the S&P 500 is a simple way to generate solid returns.

For context, the S&P 500 has grown at an annualized rate of 8% over the last five decades. At that pace, your money would double once every nine years.

However, if you have a higher risk tolerance, you can aim to beat the market by investing in individual stocks. Of course, this path will require a lot more homework but can be quite rewarding.

With that in mind, Arista Networks (ANET 1.15%) and The Trade Desk (TTD -1.80%) should benefit from unstoppable trends in the coming years, and both look like smart long-term investments. Here's why I plan to hold these stocks for the next decade (or longer).

IT professional observing network data.

Image source: Getty Images.

1. Arista Networks

Arista has long been a disruptive force in the ethernet switching industry. The company pioneered software-driven networking for cloud data centers, creating a faster, more flexible solution than traditional hardware-centric vendors. Early on, this helped Arista win customers like the Chicago Board Options Exchange (CBOE -0.40%), as its low-latency platform provided the performance required to support high-volume trading environments.

Similarly, Arista has since added large internet companies like Facebook (META -4.27%) and cloud service providers like Microsoft (MSFT -0.31%) to its list of customers. And more recently, the company expanded its purview beyond cloud data centers to enterprise campus and wireless environments.

In all cases, Arista's success can largely be attributed to its Extensible Operating System (EOS), the software that powers its entire portfolio of switching and routing products. EOS allows its clients to deploy a seamless network fabric across public, private, and hybrid-cloud environments.

By comparison, legacy vendors like Cisco (CSCO -1.84%) rely on multiple different operating systems, making maintenance and updates more complex for IT teams, which translates into increased operating expenses. Not surprisingly, while Arista's market share has risen from 4% to 20% since 2012, Cisco's has fallen from 78% to 41%. And as Arista has gained ground on the industry leader, it has delivered solid financial results.

Metric

Q2 2018 (TTM)

Q2 2021 (TTM)

CAGR

Revenue

$1.9 billion

$2.6 billion

11%

Free cash flow

$696.8 million

$894.2 million

9%

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

Although Cisco still leads the ethernet switching industry as a whole, Arista actually has more market share in high-speed environments, including 100 gigabit per second (Gbps) and above. That's particularly important because demand for high-speed switches is expected to rise in the years ahead.

As cloud computing becomes more popular and compute-intensive applications (e.g. artificial intelligence) become more common, switching platforms that offers speeds of 200 Gbps, 400 Gbps, and 800 Gbps will see increased adoption. That trend plays into Arista's strengths and should help the company gain market share.

In fact, over the next five years, I think Arista will replace Cisco as the top dog in the ethernet switching industry. That's why this tech stock looks like a smart long-term investment.

2. The Trade Desk

The Trade Desk specializes in digital advertising. Its demand-side platform (DSP) empowers marketers to create, measure, and optimize data-driven campaigns that reach consumers through a variety of channels, including desktop, mobile, and connected TV. Moreover, its programmatic tools automate the ad-buying process through real-time bidding, helping clients realize a greater return on investment compared to traditional solutions (i.e. manual negotiations).

To that end, The Trade Desk's bid-factor-based architecture gives it an edge. This technology allows advertisers to quickly define expressive targeting parameters, creating billions of permutations with just a few clicks. By comparison, every other DSP on the market relies on line-item-based architecture, a much more complicated means to the same end.

As a result, The Trade Desk has become the leading independent DSP, and that scale powers the flywheel that drives its business. As more clients use its platform to deliver campaigns, The Trade Desk captures more data, sharpening the predictive capabilities of its artificial intelligence engine. In turn, that makes its platform more valuable to all advertisers, incentivizing new clients to join and existing clients to spend more.

That virtuous cycle has translated into impressive financial results.

Metric

Q2 2018 (TTM)

Q2 2021 (TTM)

CAGR

Revenue

$380.1 million

$1.0 billion

40%

Free cash flow

$41.7 million

$280.1 million

89%

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

Beyond its formidable competitive position, The Trade Desk should benefit from industrywide tailwinds in the coming years. In 2021, global digital ad spend is expected to reach $748 billion, and $455 billion (or 61%) of that total will go toward digital ads. But just $155 billion (or 21%) will go toward programmatic digital ads.

However, The Trade Desk believes all media will eventually be transacted programmatically. That puts the company in front of a massive market opportunity, and as that trend plays out, shareholders should see market-beating returns. That's why this tech stock looks like a smart long-term investment.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Trevor Jennewine owns shares of Arista Networks and The Trade Desk. The Motley Fool owns shares of and recommends Arista Networks, Cboe Global Markets Inc, Facebook, Microsoft, and The Trade Desk. The Motley Fool has a disclosure policy.

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