Investing in growth stocks and holding them for many years is a proven method for building wealth over the long term. This is putting compound interest to work for your money. Companies that serve massive markets and grow revenue and profits can deliver incredible returns to their shareholders.
To assist you in your search for tomorrow's great companies, here are two stocks with explosive long-term return potential.
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1. Palantir Technologies
Palantir Technologies' (PLTR +1.25%) share price is up a whopping 169% over the past year and has real potential to keep growing significantly over the next several years. The company's artificial intelligence (AI) platform delivers real results, helping large businesses cut costs and speed up workflows, and its revenue growth keeps accelerating.
Palantir helps businesses across multiple industries. For example, Airbus utilizes Palantir's Foundry to intelligently monitor the engineering and operational data of its A350 jet. Ferrari uses Foundry to improve racing performance in Formula One.
The AI software market is competitive, but Palantir's stellar financial results demonstrate that it has a commanding lead over the competition. Revenue growth has steadily accelerated over the past year. In the third quarter, it reported a top-line growth rate of 63% compared to the same quarter last year, with an impressive adjusted operating margin of 51%. This is higher than Microsoft's 46% operating margin over the past year.
NASDAQ: PLTR
Key Data Points
Nvidia CEO Jensen Huang has called Palantir's technology "the single most important enterprise stack in the world." The companies are collaborating to make Nvidia's accelerated computing technology accessible on Palantir's AI platform.
This partnership with Nvidia is a catalyst for further deal momentum, as if Palantir needed it. In Q3, it closed a record $1.3 billion in total contract value with U.S. commercial customers, representing a 342% year-over-year increase, further solidifying Palantir's competitive position in the AI enterprise market.
Palantir is an expensive stock trading at a high multiple of sales, which requires investors to be willing to hold the stock for at least 10 years to allow the company's growth to justify the valuation. The premium is based on Palantir's competitive edge and its potential to sustain high growth rates. Analysts expect Palantir's earnings per share to grow at an annualized rate of 45% over the next several years, indicating that the company will be much more valuable in 10 years than it is today.
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2. Rocket Lab
Space is a promising high-growth industry with the potential to deliver handsome gains for investors over the next decade. A case in point is Rocket Lab (RKLB 4.99%), whose stock has reached new highs over the past year, increasing by 271%. It is well-positioned as one of the early leaders in an industry that could be worth trillions over the long term.
Rocket Lab provides essential launch services for payloads and satellite components for the U.S. government and commercial clients. Demand for these services is expected to continue growing as AI becomes more integrated in the economy. For example, AI can be used for tracking and detecting various things on Earth from space, including wildfires, logistics operations, and intelligence gathering.
The company's revenue grew 48% year over year, reaching $155 million in the third quarter. Although the company is not yet profitable, further top-line growth is expected to lead to improved profitability.
NASDAQ: RKLB
Key Data Points
The stock could continue to climb higher over the next few years, driven by revenue growth and the company achieving key milestones, such as the upcoming launch of its Neutron rocket. The Neutron is designed to carry much heavier payloads (up to 28,700 pounds). This is significantly greater than the current capacity of the company's smaller Electron rocket.
A greater payload capacity could generate more revenue, while Neutron's reusability will reduce costs, positioning Rocket Lab on an accelerated path to profitability. When unprofitable companies start turning a profit, it can serve as a significant catalyst for a rise in their stock price.
The consensus Wall Street forecast projects the company's revenue to grow from an estimated $600 million in 2025 to $1.9 billion by 2029. It is expected to report its first full year of profit in 2027, with adjusted earnings per share of $0.19. Earnings are expected to grow substantially from there, more than doubling in 2028 to $0.39 per share.
Rocket Lab is positioned to be a leader in an AI-driven economy, making for a potentially very rewarding investment. As one of the top leaders in an industry that is estimated to be worth at least $1 trillion, the company should grow into its high valuation and deliver returns for investors over the next 10 years and beyond.
