Taking a buy-and-hold approach to great companies with powerful performance tailwinds at their backs continues to be one of the best ways for investors to build wealth over the long term. Even a relatively modest amount invested, such as $1,000, has the potential to become a much larger sum over time if you put your money behind the right companies.
With that in mind, read on to see why two Motley Fool contributors think that investing in Nvidia (NVDA 6.18%) and Netflix (NFLX -0.63%) would be a great move right now.
Nvidia's AI growth story is just getting started
Keith Noonan: No doubt about it -- there's a ton of hype surrounding artificial intelligence (AI) right now. On the other hand, AI stands a very good chance of being this century's most important technology shift. Perhaps more than any other company, Nvidia is at the heart of pushing the artificial intelligence revolution forward.
Even after surging roughly 225% across 2023's trading and climbing to a market capitalization of roughly $1.18 trillion, the semiconductor specialist still has room to deliver big wins for long-term investors. Nvidia's graphics processing units (GPUs) and other accelerated processors have become essential hardware for running today's most advanced AI applications. In turn, the company has been posting stellar business results.
In the third quarter, Nvidia posted non-GAAP (adjusted) earnings per share of $4.02 on revenue of $18.12 billion. Meanwhile, the average analyst estimate had called for the business to post per-share earnings of $3.37 on sales of $16.18 billion.
Nvidia's revenue jumped 206% compared to the prior-year period, and adjusted earnings per share soared 593% compared to the $0.58 in per-share earnings it posted in last year's quarter.
Notably, it doesn't look like a big performance slowdown is coming on the near horizon. Nvidia is guiding for sales of roughly $20 billion in its current quarter -- good for growth of roughly 231%.
Beyond its core hardware offerings, Nvidia has also expanded into software and delivering cloud-based AI computations as a service. Not only will these new offerings provide a new source of revenue, but an increasing emphasis on service-based models should help the business continue to deliver robust margins.
A streaming pioneer with an attractive valuation
Parkev Tatevosian: Netflix is one of my favorite growth stocks right now. The streaming pioneer did an excellent job weathering the flurry of new entrants into the industry it started. Rather than taking customers from Netflix, the competition spurred customers to rely more on streaming services for their content needs.
Netflix's revenue jumped from $6.8 billion in 2015 to $31.6 billion in 2022 and is forecast to grow to $33.6 billion in 2023. That's evidence a growing number of people find its services appealing. Given that streaming content is more convenient than watching over a cable or satellite connection (you can take streaming subscriptions with you anywhere), I would not be surprised if Netflix continues to expand.
Perhaps equally as important for investors, Netflix has grown profitably. Netflix's operating income soared from $306 million in 2015 to $5.6 billion in 2022 and is forecast to hit $6.6 billion in 2023. That's a nearly 22x increase over the past eight years.
I always like to see companies growing their business responsibly and not chasing unprofitable customers. Moreover, Netflix's business is built for economies of scale. It costs Netflix roughly the same when 2 million people watch a movie as when 200 million people watch.
NFLX PE Ratio (Forward 1y) data by YCharts
With these positive characteristics, I would be willing to pay a premium valuation for Netflix stock. That said, at a forward price to earnings of 30, I believe that Netflix stock trades at a fair price. Investors looking for a growth stock to invest $1,000 in have an excellent choice in Netflix.
