Some investors will tell you it's easier to invest in an S&P 500 index fund or exchange-traded fund (ETF) instead of juggling individual stocks. The S&P 500 has generated an average annual return of 10% since its inception in 1957, but 89.5% of all professional funds tracked by SPIVA Scorecards underperformed that index over the past 10 years.
That's certainly a prudent strategy for risk-averse investors, but there are still plenty of blue chip growth stocks that could easily outperform the S&P 500 on their own over the next decade. Let's take a closer look at three of them: Alphabet (GOOG +4.00%) (GOOGL +3.97%), Meta Platforms (META +2.31%), and Arm Holdings (ARM +6.47%).
Image source: Getty Images.
Alphabet
Alphabet's Google owns the world's most popular search engine, the most widely used mobile operating system (Android), the top web browser (Chrome), the biggest webmail service (Gmail), and the largest streaming video platform (YouTube). It also owns the third-largest cloud infrastructure platform (Google Cloud) as well as one of the top cloud-based productivity suites. That sprawling ecosystem accumulates plenty of data to support the growth of its digital ads and its Gemini generative AI platform.
NASDAQ: GOOGL
Key Data Points
Over the next decade, it should continue growing as it deeply integrates those AI tools into its core search, advertising, YouTube, and cloud platforms. Its cloud infrastructure platform should also continue to attract more spending from large companies as they ramp up their spending in cloud-based AI applications. That growth of those cloud and AI ecosystems should drive its newer projects -- including driverless vehicles and quantum computing -- to become new growth engines in the future.
Google faces near-term headwinds from antitrust probes as well as intense competition from OpenAI's ChatGPT and short video platforms like ByteDance's TikTok and Meta's Reels. But it could also easily leverage its massive scale to weather those challenges by making more aggressive investments.
From 2024 to 2027, analysts expect Alphabet's revenue and EPS to grow at a CAGR of 13% and 16%, respectively. It's still reasonably valued at 26 times next year's earnings, and it should maintain that momentum over the next decade as long as its core growth engines stay healthy.
Meta Platforms
Meta Platforms is the world's largest social media company. It served 3.54 billion daily active people across its entire family of apps (Facebook, Instagram, Messenger, and WhatsApp) in its latest quarter, and it shares a near-duopoly in digital ads with Google across many regions.
NASDAQ: META
Key Data Points
Like Google, Meta mines its users' data to craft targeted ads. To reduce its dependence on data from third-party sources (like external apps and websites), it's been upgrading its own AI algorithms to gather more first-party data for those ads. Its Reality Labs segment has also been launching more augmented and virtual reality devices.
Meta is still gaining new users as it increases its total ad impressions and average ad prices, but it faces some near-term concerns regarding its rising capital expenses -- most of which will be allocated toward the expansion of its AI infrastructure and unprofitable Reality Labs segment. But from 2024 to 2027, analysts still expect Meta's revenue and EPS to grow at a CAGR of 18% and 12%, respectively. Its stock looks reasonably valued at 22 times next year's earnings, and it could be a great investment right now if you expect its AI and mixed reality investments to bear fruit and reinforce its leadership of the social media and digital advertising markets.
Arm Holdings
Arm designs the mobile chips that power about 99% of the world's smartphones. It conquered that market by designing more power-efficient chips than the x86 CPUs used by Intel and AMD in PCs and servers. Instead of manufacturing its own chips, Arm licensed its designs to chipmakers like Qualcomm, MediaTek, and Apple -- which all pushed x86 chips out of the market over the past decade. It generates most of its revenue by charging those chipmakers royalties and licensing fees.
NASDAQ: ARM
Key Data Points
Most of Arm's recent growth was driven by the market's robust demand for its AI-optimized Armv9 chip designs (which generate higher-margin royalties than its non-AI chip designs) across the smartphone, cloud, and auto markets. It also plans to start manufacturing its own first-party chips soon -- and those chips could cost a lot less than other Arm-licensed chips because it doesn't need to pay its own royalties and licensing fees.
From fiscal 2025 (ended this March) to fiscal 2028, analysts expect Arm's revenue and EPS to increase at a CAGR of 20% and 33%, respectively. Its stock might seem expensive at 123 times next year's earnings, but it could have plenty of room to expand over the next decade as its chips expand beyond mobile devices and start taking over the PC and server markets. Its own first-party chips could also pull device makers away from its own licensees, so it could be a solid long-term investment.
