Investing in growth stocks can be a powerful way to build long-term wealth — but it’s not always a smooth ride. Growth stocks tend to outperform when the market is rewarding future potential, and they can fall hard when investors get more cautious.
That’s exactly what we’ve seen in recent years. Growth stocks surged in 2025 (the S&P 500 Growth index gained 21.4% versus 11% for the S&P 500 Value index), but they were crushed in 2022 (down 30% versus 19% for the S&P 500 overall).
The upside is real. So is the volatility. The goal is to invest in growth companies that can keep compounding through good markets and bad — and to build a strategy that helps you stick with them.
What is a growth stock?
A growth stock is a company expected to increase revenue and earnings faster than the broader market (or faster than most peers). Many growth companies win by doing at least one of the following:
- Taking share in a large existing market
- Expanding into new markets
- Creating a new product category altogether
Because investors are paying for future potential, growth stocks often trade at higher valuations than average. That doesn’t mean they’re “overpriced”, but it does mean expectations are high, and the stock can drop quickly if growth slows.
Why they can be volatile: Growth stocks are especially sensitive to interest rates and inflation because more of their value is tied to earnings expected years in the future. That’s why downturns can hit them harder.
Top growth stocks to consider
| Company name | Company ticker | Market cap | Industry |
|---|---|---|---|
| Meta Platforms | NASDAQ:META | $1.6 trillion | Interactive Media and Services |
| Shopify | NASDAQ:SHOP | $147.0 billion | IT Services |
| Uber Technologies | NYSE:UBER | $145.4 billion | Road and Rail |
| Block | NYSE:XYZ | $30.3 billion | Diversified Financial Services |
| MercadoLibre | NASDAQ:MELI | $100.8 billion | Multiline Retail |
| Nvidia | NASDAQ:NVDA | $4.4 trillion | Semiconductors and Semiconductor Equipment |
| Netflix | NASDAQ:NFLX | $324.6 billion | Entertainment |
| Amazon | NASDAQ:AMZN | $2.1 trillion | Multiline Retail |
| Salesforce | NYSE:CRM | $177.8 billion | Software |
| Alphabet | NASDAQ:GOOG | $3.7 trillion | Interactive Media and Services |
As this list shows, growth stocks come in all shapes and sizes. They can be found in a variety of industries, both within the U.S. and in international markets. Although all the stocks on this list are from larger businesses, smaller companies can also be fertile ground for growth investors.
A great way to invest in a wide variety of small-cap growth stocks is via an exchange-traded fund (ETF), such as Vanguard Small-Cap Growth Index Fund ETF (VBK +1.53%). This fund tracks the performance of the CRSP U.S. Small Cap Growth index, which gives investors an easy way to invest in roughly 560 small-cap growth companies all at once.
The Vanguard Small-Cap Growth Index Fund ETF has an ultra-low expense ratio of 0.05%. This means investors will receive almost all the fund's returns, with only a small amount in fees going to Vanguard. (An annual expense ratio of 0.05% works out to only $0.50 in fees per $1,000 invested annually.)
How to find growth stocks
To find great growth stocks, you'll need to:
- Identify powerful long-term market trends and the companies best positioned to profit from them.
- Narrow your list to businesses with strong competitive advantages.
- Further narrow your list to companies with large addressable markets.
If you can identify stocks of companies with strong competitive advantages being sold off along with the rest of the market, it can be an opportunity to generate massive returns as they recover. Some competitive advantages are:
- Network effects: Meta's Instagram is a prime example here. Each person who joins the social media platform makes it more valuable to other members. Network effects can make it difficult for new entrants to displace the current market share leader. Meta's 3.5 billion users across its family of apps certainly make it unlikely that a new social media company will displace it.
- Scale advantages: Size can be another powerful advantage. Amazon is a great example in this category because smaller rivals will find it extremely difficult to replicate its massive global fulfillment network.
- High switching costs: Switching costs are the expenses and difficulties associated with switching to a rival's product or service. Shopify, an online retail system for more than 1 million businesses, is a perfect example of a business with high switching costs. Once a company begins using Shopify as the core of its online operations, it's unlikely to go through the hassle of switching to a competitor.
Why invest in growth stocks?
- They have high return potential.
- Less demand for immediate capital returns allows management to invest in the future.
- They can add diversification to your portfolio across market segments and sectors.
- Participate in major economic trends.
- One excellent growth stock investment can make up for a handful that don't work out.
Risks of investing in growth stocks
Growth stocks can offer excellent long-term returns, but there are no free lunches in the stock market. The cost of better returns is greater risk.
Growth stocks generally exhibit greater price volatility. That's partly due to their higher valuations. Any changes in expectations for the future are multiplied by a greater factor when valuations are high. As such, investors need to be able to stomach severe drawdowns in the value of their growth stocks.
Individual growth stocks also hold significantly more risk than individual value stocks. By their nature, growth stocks are less predictable, so an individual investment could face setbacks from poor execution, challenges scaling the business, or another company disrupting its product or market. So, growth stock investors should maintain a portfolio of companies across industries and in different phases of growth.
Strategies for investing in growth stocks
Growth stocks can produce market-beating returns, but they can also quickly drag your portfolio lower. A key strategy to successful growth stock investing is to build a portfolio of stocks based on the opportunities and risks presented by each company you're considering.
If two companies are highly correlated (perhaps they're both highly exposed to growing AI spending), you might reduce your exposure to both stocks while increasing your allocation toward another company that's not related to that industry.
You only need a handful of great growth stocks to build a good portfolio. Each stock you add beyond your best ideas could detract from your long-term returns, but if it has the potential to smooth out the ride, it could be worth owning.
Growth stocks versus dividend stocks
While some growth stocks might pay a dividend, growth stocks and dividend stocks usually don't overlap. Here are the key differences:
Growth Stocks | Dividend Stocks |
|---|---|
Fast-growing young companies in evolving industries. | Slow-growing mature businesses in stable industries. |
Reinvest profits in expanding the business and growing market share. | Pay out a large portion of profits as dividends for shareholders. |
May produce little or negative free cash flow as management invests in the business. | Steady and predictable growth in free cash flow over time. |
Higher volatility. | Lower volatility. |
The biggest risk is management's execution on the long-term outlook. | The biggest risk stems from mismanaging capital allocation, leading to a dividend cut. |
Typically trade for high valuations. | Typically trade for low valuations. |
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