Strong sales growth is one hallmark of a successful business. It is not the only important metric by any means -- profitability is essential at some point -- but sales growth is ultimately the limiting factor where profitability is concerned.
With that in mind, Morgan Stanley analyst Keith Weiss expects 469% sales growth from Shopify (SHOP 0.28%) over the next decade, and Morningstar analyst Brian Colello anticipates 630% sales growth from Nvidia (NVDA -3.89%) during the same period.
Here's what investors should know about these monster growth stocks.
1. Shopify
Shopify simplifies retail for businesses of all sizes. Its software helps merchants manage sales across physical and digital channels, including online marketplaces, social media, and branded websites. Shopify also provides adjacent merchant services, including solutions for financing, payments, and logistics. That all-inclusive product strategy has helped the company earn a strong presence in retail.
Shopify powered 10% of U.S. retail e-commerce sales last year, making it the second-largest domestic e-commerce company behind Amazon. Shopify is also the market leader in e-commerce software, and its enterprise-grade platform (Shopify Plus) is the leading omnichannel commerce software. That last point is especially important because Plus includes tools for wholesale e-commerce and marketing, thereby extending the company's addressable market beyond retail.
Shopify shook off macroeconomic headwinds in the second quarter. Revenue increased 31% to $1.7 billion, an acceleration from 16% growth in the prior year. And non-GAAP (adjusted) net income improved to $178 million, up from a loss of $32 million in the prior year. Investors should expect similar momentum in the coming quarters.
Straits Research says retail e-commerce sales will increase by 8% annually through 2030, and Grand View Research says wholesale e-commerce sales will increase by 20% annually over the same period. Shopify is well positioned to benefit from both tailwinds, but it continued to roll out products in the second quarter -- including a suite of artificial intelligence (AI) tools that automate various commerce workflows -- that should further its ability to engage merchants.
In total, Morgan Stanley expects Shopify to grow revenue at 19% annually over the next decade, implying a 469% increase in sales during that period. That outlook makes its current valuation of 9.4 times sales -- a bargain compared to the three-year average of 26 times sales -- look downright cheap. Investors should not hesitate to buy a small position in this growth stock today.
2. Nvidia
Nvidia specializes in accelerated computing. Most investors know the company for its graphic processing units (GPUs), chips that are the gold standard in graphics and complex data center workloads like AI. Indeed, Nvidia holds more than 95% market share in workstation graphics and machine learning processors. But its portfolio actually spans hardware, software, and services that address four markets collectively valued at $1 trillion: gaming, professional graphics, data center, and automotive computing.
The data center segment is the largest of the four, and Nvidia GPUs hold a 95% market share in that space. The company has broadened its ability to support data center workloads by branching into high-performance networking. Nvidia has also built a full-stack AI platform comprising cloud infrastructure services, software, and pretrained models. Those tools help businesses develop and deploy applications (including generative AI applications) that address a wide range of use cases, from retail product recommender systems to factory automation.
Nvidia reported stunning financial results in the most recent quarter. Revenue soared 101% year over year to $13.5 billion on record data center sales, and non-GAAP net income rose more than fivefold to $6.7 billion. That rapid bottom line growth was due, in part, to margin expansion brought on by a mix shift toward software sales, which earn higher margins than hardware sales.
Looking ahead, the AI market will expand at 37% annually to hit $1.8 trillion by 2030, according to Grand View Research. Few (if any) businesses are better positioned to benefit than Nvidia. To quote Angelo Zino of CFRA, "We believe Nvidia's accelerated computing GPUs stand out to be the biggest beneficiary in an AI-driven world." But he is far from the only bullish analyst.
Brian Colello of Morningstar projects that Nvidia will grow revenue at 22% annually over the next decade, implying a 630% increase in sales during that period. Even in that context, its current valuation of 30.9 times sales still looks a little pricey. But I think investors with a time horizon of at least five years can buy a small position in this growth stock today, provided they are prepared for volatility.
