The Consumer Price Index hit a 40-year high this week, up 8.5% over the past year. To combat rising prices, the Federal Reserve has already raised its target interest rate by a quarter-point, and six more rate hikes are expected in 2022. But 28% of economists surveyed by The Wall Street Journal think the Fed will move too aggressively to combat inflation and will inadvertently tip the economy into a recession in the next 12 months. That figure is up from 18% in January's survey and 13% in a survey from last year.
Should you sell your stocks on this news? Absolutely not. The S&P 500 has generated an annualized return of 8.3% over the last three decades despite weathering several economic downturns during that time. If you try to time the market, you will likely get burned. Instead, focus on investing in high-quality businesses that can create wealth over the long term.
To get you started, here are two growth stocks with monster potential to consider.
1. Nvidia: Advancing artificial intelligence
Artificial intelligence (AI) promises to be one of the most transformative technologies in human history. While AI has slowly crept into our daily lives, it currently plays a limited role, such as recommending relevant products and content. But Nvidia CEO Jensen Huang believes the next wave of AI is robotics; digital and physical robots will not only make decisions but also put them into action.
Nvidia is best known for its graphics processing units (GPUs), chips that first disrupted the gaming and entertainment industries with revolutionary graphics. But those chips have also made Nvidia the gold standard in AI, and the company has reinforced its best-in-class hardware with subscription software like AI Enterprise, a suite of tools that helps organizations build, deploy, and optimize AI applications. Nvidia also provides frameworks that accelerate software development, such as Isaac for autonomous robots and Drive for autonomous vehicles.
Today, in addition to leading the graphics industry, Nvidia controls over 90% of the supercomputer accelerator market, and it has consistently dominated the MLPerf Benchmarks, a series of trials designed to measure the performance of AI technology. Last year, that competitive edge translated into another strong financial performance. Revenue climbed 61% to $26.9 billion, operating margin expanded 10 percentage points to 37.3%, and free cash flow soared 73% to $8.1 billion.
Looking ahead, Nvidia puts its market opportunity at a whopping $1 trillion, leaving plenty of room for growth. And given Nvidia's leadership role in advancing AI technology, this monster growth stock looks like a smart long-term investment.
2. DigitalOcean: Simplifying cloud computing
Cloud computing has revolutionized the IT world. Rather than investing in costly hardware, businesses can provision infrastructure through the internet. But leading vendors like Amazon Web Services (AWS) typically tailor their products to larger enterprises -- the kind with robust IT departments. While AWS undoubtedly provides an array of cutting-edge services, they are often too complex for small and medium-sized businesses (SMBs).
DigitalOcean democratizes cloud computing. Its easy-to-use interface allows clients to provision infrastructure and platform services in minutes, without any formalized training. The company also provides 24/7 technical and customer support, and an extensive library of tutorials. In doing so, DigitalOcean helps its clients build, deploy, and scale applications in the cloud, allowing SMBs to benefit from modern technology in the same way that larger enterprises do.
Despite intense competition from much larger vendors, DigitalOcean is growing at a good clip. The company hit 609,000 customers last year, up 6%, and the average customer spent 16% more, evidencing the stickiness of its platform. In turn, revenue jumped 35% to $429 million, and the company generated positive free cash flow of $24 million, up from a loss of $58 million in the prior year.
The company puts its addressable market at $145 billion by 2025, and management is working hard to make good on that opportunity. In the past year, the company unveiled new infrastructure-monitoring tools and a fully managed version of MongoDB's industry-leading document database, further simplifying application development. More broadly, DigitalOcean has a differentiated businesses model, and with 14 million new start-ups formed each year, the company's mission to democratize cloud services will only become more relevant. That's why this growth stock could generate monster returns in the long run.