When you get a stock tip, it's important to look beyond the performance of the stock to see how the business is performing. Identifying businesses with a record of growth and large opportunities for business expansion can point you toward stocks that can produce lasting wealth.
There are stocks that rise sharply on temporary demand for their product, but then they fizzle out as interest wanes. It's more helpful to think about long-term trends in society and the broader economy that can fuel a business for many years and not just for the short term.
To give you some investing ideas, let's consider the main reasons to consider buying shares of Nvidia (NVDA 6.18%) and Fiverr International (FVRR 3.74%). These two hot stocks have real potential to be long-term buy-and-hold winners. Here's why.
1. Nvidia
Nvidia is the leading chip supplier for companies involved with artificial intelligence (AI). As the leader in graphics processing technology, Nvidia spent years honing its expertise in designing graphics processing units (GPUs) for gaming for most of its history before adapting the technology for general-purpose computing in the last decade. With more and more organizations starting to adopt AI technology, Nvidia's stock price hit new highs this year. But the potential for AI-related demand to boost Nvidia sales suggests this tech giant is just getting started.
Gaming GPUs were Nvidia's largest revenue source for a long time, but in the last few years, data center growth has taken over. Surging demand for high-performance GPUs for AI doubled Nvidia's total revenue last quarter, pushing data center revenue to 76% of the business.
Investors might look at Nvidia's $1.1 trillion market capitalization and wonder how the stock can continue to climb, but consider where we are in AI adoption. Data centers will need to upgrade to the latest generation of hardware and software systems to handle AI computing workloads, which is why the stock is still a solid investment.
Nvidia stock won't rise in a straight line. There have been two episodes in the last six years where the stock fell sharply from its previous high, so investors will need to tolerate occasional share price swings, but patience should be well rewarded 10 years from now.
2. Fiverr International
Fiverr experienced rapid business growth in recent years, which sent the stock soaring following the company's initial public offering in 2019. Its e-commerce-style marketplace for business services proved very successful, with revenue growing from just $52 million in 2017 to $337 million in 2022.
The stock price is down 9% over the last year, as near-term headwinds in the economy weighed on the company's growth, but it should accelerate again. The company continues to innovate with new products, such as Fiverr Neo, which uses machine learning and large language models to match business customers with the right person for the job.
Fiverr's previous growth indicates the size of the market it is going after. There are many companies that still rely on finding freelancers offline, but Fiverr is positioned to capture more of that business as it shifts online.
This is why it's also encouraging to see Fiverr's profitability strengthen as revenue grows. Certain operating expenses fell as a percentage of revenue, which is driving a higher net profit.
With profitability improving, the stock won't stay down forever. A price-to-free cash flow multiple of 20 seems unfairly low considering Fiverr's record of growth and tremendous opportunity still ahead.
How to invest in hot growth stocks
A smart way to go about buying any growth stock for the long term is to start small with a few shares and gradually fill out the position in a diversified portfolio. Remember to always focus on the business, and the stock will take care of itself as the years pass, maybe even into retirement.
