Growth stocks are known for their potential to rapidly increase in value. They come with a risk-reward trade-off, but for investors who can stomach the volatility that typically comes with them, growth stocks can be real moneymakers over time.
The key is patience.
Not all growth stocks have to be speculative or high-risk, either. Some growth stocks also provide investors with relative stability. If you have $5,000 to invest, the following two growth stocks are great options because of their market-beating potential.
1. Amazon
Amazon (AMZN +2.05%) has been one of the stock market's quintessential growth stocks for quite some time. A $10,000 investment at its May 1997 initial public offering would be worth over $15.5 million today. You can't ask for much more growth than that.
NASDAQ: AMZN
Key Data Points
Even with its generational returns, Amazon is well positioned to continue growing at a good rate. Of course, its e-commerce business made it a household name, but Amazon has its hand in several industries that are still growing, including artificial intelligence, healthcare, and cloud services.
Amazon Web Services (AWS) is Amazon's true moneymaker, accounting for most of its profit. AWS is the leading cloud service provider, with a 31% market share as of the third quarter of 2023. That's a 1% drop from recent quarters, but I don't believe that's a cause for concern.
The cloud computing market is projected to have a compound annual growth rate of 17.8% from 2023 to 2032, according to Acumen Research and Consulting. Even growing at that rate could expand AWS and boost Amazon's profits.
AMZN Net Income (Quarterly) data by YCharts
Amazon Prime Video could be an underrated growth area for Amazon. Although it has been around since September 2006, recent moves such as buying the rights to the NFL's Thursday Night Football and investing heavily in expanding its original content have put Amazon Prime Video in a competitive position.
Amazon received some backlash when it announced it would begin showing ads on Amazon Prime Video (or you can pay $2.99 per month to avoid ads), but I don't see that having a tangible effect on its growth. Realistically, it was only a matter of time.
Having access to your shopping data and then being able to show you relevant ads on Amazon Prime Video is the type of integration that I'm sure Amazon has been seeking. Its e-commerce business could see an assist from the move.
2. Alphabet
Google's parent company, Alphabet (GOOGL 0.41%) (GOOG 0.20%), didn't have the monster year that big tech growth stocks such as Nvidia or Amazon had, but you can't beat 58% returns in a year.
NASDAQ: GOOGL
Key Data Points
Google advertising is undoubtedly Alphabet's most important business, accounting for more than 77% of its revenue in the third quarter of 2023. That's less than the 80% it accounted for three years ago, showing that other segments such as cloud and "Other Bets" (which includes Waymo) are beginning to pick up steam.
Google Cloud has grown impressively, making up 11% of Alphabet's revenue in the third quarter. It's still firmly in third place in cloud service market share (11%), trailing AWS and Microsoft's Azure, but this is a notable increase from its 6% market share in 2017. Much like AWS, Google Cloud should see a boost from overall industry growth in the coming years.
There's also an argument to be made that Alphabet stock is currently undervalued, especially when you look at the free cash flow the company generates. Its free cash flow outpaces tech giants such as Microsoft, Nvidia, and Amazon. This gives Alphabet plenty of cash leeway to invest aggressively in emerging technologies, make strategic acquisitions, and repurchase shares.
GOOGL Free Cash Flow data by YCharts
With a price-to-free cash flow ratio of around 23.5, Alphabet trades at a significant discount to its peers. There may be legitimate concerns about Alphabet's reliance on Google advertising and antitrust scrutiny, but Alphabet is still positioned to return significant shareholder value for the foreseeable future.
