Buying and holding solid companies for the long run is a recipe for success in the stock market as such a strategy allows investors to benefit from the power of compounding while helping them ride disruptive trends in various industries.
Advanced Micro Devices (AMD 0.70%) and Amazon (AMZN -2.40%) have delivered terrific returns to investors over the past decade, beating the broader stock market handsomely.
AMD data by YCharts.
AMD has taken advantage of the booming demand for chips that are used in several applications ranging from computers to gaming consoles to data centers. Amazon, on the other hand, has won big from the growing adoption of e-commerce across the globe, and it has expanded into fast-growing and lucrative markets such as cloud computing.
What's more, AMD and Amazon could continue to be big stock market winners over the next decade, making these two stocks ideal candidates to hold for the long run. Let's see why.
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1. Advanced Micro Devices
Advanced Micro Devices' stock price is down 32% in 2022, opening a solid window for investors to buy this chipmaker at a relatively cheap valuation. Shares of the company are trading at 39 times trailing earnings, lower than its five-year average of 108 and last year's earnings multiple of 44. Buying AMD at these multiples may turn out to be a smart long-term bet as the company can benefit from multiple growth drivers over the next decade.
The video gaming market, for example, should turn out to be a huge catalyst for the company as AMD manufactures discrete graphics cards that are used for PC (personal computer) gaming, semi-custom chips used in gaming consoles, and CPUs (central processing units) for PCs.
AMD held a 19% share of the discrete GPU (graphics processing unit) market at the end of 2020. Additionally, the company's share of the desktop CPU market stood at 16.2% at the end of 2021, according to Mercury Research. It also controlled 21.6% of the notebook CPU market at the end of last year. The global computer gaming market could hit $146 billion by 2030 as compared to $40 billion in 2020, driven by an increase in sales of GPUs, faster processors, and other components such as memory and cooling systems.
So, holding on to its share of discrete GPUs and CPUs would enable AMD to deliver substantial incremental revenue growth thanks to the growth of the PC gaming hardware space.
Meanwhile, the data center market could turn out to be another happy hunting ground for AMD. The company's data center revenue more than doubled in 2021, with the segment producing around 25% of its revenue. AMD's data center business was driven by the company's growing share of the server CPU space, as well as the robust demand for its data center accelerators.
Mercury Research estimates AMD exited 2021 with a 10.7% share of the server processor market, up from 7.1% in the prior-year period. Bank of America estimates AMD's server market share could eventually go up to 35% in the long run, which could result in substantial revenue growth for the company as this market is reportedly worth $70 billion right now.
AMD is also making terrific strides in the data center GPU market, with revenue from this product line more than doubling in the fourth quarter of 2021. The company is confident of stronger growth in this segment as more customers are choosing its data center cards to accelerate artificial intelligence and high-performance computing workloads.
With the data center accelerator market expected to clock 40% annual earnings growth through 2030, this is another fast-growing area that could give AMD a big boost. Not surprisingly, analysts are expecting 30% annual earnings growth from AMD for the next five years -- a pace that it could sustain for a longer period given the catalysts discussed above. All this indicates that AMD could continue to be a hot growth stock over the next decade, just like it has been in the past one.
2. Amazon
Amazon is another stock that could sustain its outstanding momentum over the next decade thanks to the massive potential of the markets it operates in. The global e-commerce market, for instance, is expected to grow over fourfold by 2030 to $17.5 trillion as compared to $4.2 trillion in 2020.
Amazon is one of the biggest e-commerce companies globally, accounting for a 13% share of the gross merchandise value (GMV) -- which is the total value of goods sold through e-commerce -- in 2020 as per third-party estimates. This means Amazon is in a nice position to make the most of the end-market opportunity on offer. It is also worth noting that Amazon is the key player in important e-commerce hotspots such as the U.S., the U.K., and India.
Amazon reportedly controlled 43% of the e-commerce market in the U.S. last year, while its share in the U.K. and India stands at 30% and 31%, respectively. The U.S. and the U.K. are the second- and third-largest e-commerce markets in the world, while India occupies seventh place. These countries are set to play an important role in the growth of the global e-commerce market. India, for instance, could become a $350 billion e-commerce market by 2030 as compared to $46 billion in 2020.
So, the secular growth of the e-commerce market across the world should rub off positively on Amazon in the long run. This, however, isn't the only major catalyst for the company. Amazon Web Services (AWS) -- the company's cloud computing division -- is its fastest-growing segment. AWS recorded 37% annual growth in 2021, outpacing the company's overall revenue growth of 22%.
The AWS business produced $62 billion in revenue last year out of Amazon's total revenue of $469.8 billion, which translates to 13% of the company's top line. So, the cloud business could move the needle in a bigger way for Amazon in the long run as it has the capability to keep growing at a faster pace than the e-commerce business. That's because Amazon is the leading player in the cloud infrastructure market. It controlled a third of this $180 billion market last year, and the good part is that it has maintained its dominance in this space for the past five years.
With the global cloud infrastructure market expected to clock 16% annual growth through 2030, Amazon's solid market share in this space could give its top line a nice boost in the long run. All this explains why Amazon's earnings are expected to grow at nearly 35% a year for the next five years. It won't be surprising to see it maintain that pace beyond that period due to the booming cloud computing and e-commerce businesses, which is why it is a growth stock worth holding on to for the next decade.
