Beating the market is a goal of almost every investor. To stack the odds in your favor, it's not enough to simply choose industry leaders. It usually works to stick with companies growing revenue and profits at above-average rates compared to the typical company in the S&P 500 index.
Since 1985, the S&P 500 has delivered median annualized earnings growth of 11.8%, according to LSEG Datastream. This is consistent with the historical 10% average annual return of the index itself.
Let's look at three S&P 500 members who are projected to grow earnings well above those rates over the next five years.
1. Nvidia
The world is increasingly running on powerful data centers. Consider that Alphabet, Microsoft, and Amazon serve billions of customers every day, delivering search results, product recommendations, and cloud services. None of these businesses could function without data centers, which all use chips provided by Nvidia (NVDA 0.22%).
NASDAQ: NVDA
Key Data Points
Data centers are rapidly upgrading their hardware to powerful components required for artificial intelligence (AI), which will bring many new conveniences to the way people work and gather information. But it will also require tremendous increases in computing power. This is a huge opportunity for Nvidia.
Nvidia's revenue has been growing at triple-digit rates over the last year. In the most recent quarter, its top line increased 262% year over year, with orders from large cloud providers making up over 40% of the company's $22 billion in data center revenue.
However, not all AI tasks will be performed on cloud servers. There will be growing demand for powerful chips needed to run AI tasks locally on devices, such as PCs, where Nvidia's graphics processing units (GPUs) have been the preferred choice of video gamers for many years. Earlier this year, Nvidia announced its new line of GeForce RTX Super GPUs that can handle the acceleration in computing needed for AI software running on desktop PCs.
As Tesla CEO Elon Musk has said, "There is currently nothing better than Nvidia hardware for AI." Wall Street analysts expect Nvidia's earnings to grow at an annualized rate of 37%. The stock has already crushed the market over the last five years, and its outperformance should continue with investment in AI infrastructure just starting to heat up.
2. Take-Two Interactive
Take-Two Interactive (TTWO 0.10%) is one of the leading makers of video games, an industry worth $282 billion and growing, according to Statista. The growth of interactive entertainment is a key long-term catalyst for Take-Two shares to beat the market.
NASDAQ: TTWO
Key Data Points
Take-Two has a large portfolio of titles for PC, console, and mobile platforms, but it's best known as the maker of the highly acclaimed Grand Theft Auto franchise, one of the best-selling series of all time. Take-Two is scheduled to release roughly 40 new titles through fiscal 2027 ending in March. Some of these titles will be brand-new franchises, but many will be new installments of existing franchises that lower the risk of disappointing sales.
Take-Two's slate for fiscal 2025 shows several sports titles, including Top Spin 2K25 and NBA 2K25. Licensed sports games tend to sell to a loyal base of customers who regularly buy these annual releases. These titles will be mixed in with some original releases that could turn out to be gems, such as the recent release of No Rest for the Wicked from Take-Two's Moon Studios, which grossed an estimated $24 million after launching as an Early Access title in April, according to VG Insights.
The main catalyst is the release of Grand Theft Auto VI expected in the fall of calendar 2025. The last version in the series sold 200 million copies since 2013 and is still one of the most popular games today. Many of these players will buy the new version, which will include updated graphics and an entirely new storyline to play through. This is one reason management anticipates sequential growth in adjusted revenue, or bookings, over the next three years.
Take-Two stock has underperformed in recent years, but it has started moving higher over the last year as investors begin to price in the expected growth from new releases. Wall Street analysts expect Take-Two to grow earnings at an annualized rate of 36%, setting up excellent prospects for the stock to outperform the index.
3. Mastercard
Investing in a credit card company might seem boring, but investors shouldn't take the long-term opportunity in electronic payments for granted. Mastercard (MA 0.21%) benefits from a difficult-to-duplicate payment processing network, which is why there are only a few major credit card brands. Holding the stock is in many ways like earning a royalty on global consumer spending.
NYSE: MA
Key Data Points
Mastercard is continuing to grow like a high-performing business worthy of a spot in a growth investor's portfolio. The company's revenue grew 10% year over year in the first quarter, but share repurchases and leverage of its operating expenses drove an impressive 18% increase in adjusted earnings per share over the year-ago quarter. The company has consistently performed at this level for many years.
Cross-border e-commerce shopping is a major opportunity for Mastercard. As one of the top brands in the world, Mastercard should realize significant payment volume growth, as the cross-border e-commerce market is expected to reach $7.9 trillion by 2030 -- an increase of tenfold over 2021.
But that's just a small slice of Mastercard's vast potential, according to analysts at Piper Sandler. The firm estimates Mastercard's total addressable market, including cross-border, transaction processing, and other value-added services, at over $250 trillion.
The stock has performed roughly in line with the index over the last five years, but if Mastercard continues controlling expenses and buying back shares, its above-average earnings growth should carry the stock higher.
The Wall Street consensus projects earnings to grow 16% on an annualized basis. That is well above the historical earnings growth of the S&P 500 index and should lead to market-beating returns for investors.
