The huge growth opportunities that Amazon and Nvidia sit on could send their stock prices soaring long term.
Technology stocks have outperformed the broader market handsomely over the last decade — illustrated by the fact that the Nasdaq-100 Technology Sector Index clocked a gain of 421% over the period compared to the S&P 500 index’s 178% rise. The outperformance isn’t surprising. Tech companies tend to benefit from disruptive trends, which allows them to deliver outsized growth.
The top tech stocks, such as Nvidia (NVDA 2.57%) and Amazon (AMZN -0.17%), have far outpaced even the Nasdaq-100’s performance in that timespan, giving long-term investors’ portfolios a big boost.
Data by YCharts.
To be fair, it would be difficult for Nvidia and Amazon — now two of the world’s largest companies — to replicate such terrific 10-year gains over the next decade. However, buying these two tech giants and holding on to them as a part of a diversified portfolio has a great chance of being a smart long-term move. Both companies still sit on tremendous growth opportunities in multiple markets, which is why they could become ideal picks for investors looking to grow a million-dollar portfolio.
The case for Nvidia
Nvidia has come a long way. Two decades ago, it largely sold graphics processing units (GPUs) for use in gaming personal computers (PCs) and workstations, but today, its hardware (and software) is powering computationally intensive applications in data centers, advanced driver-assistance systems, factories, and digital twin creation, among other areas. Artificial intelligence (AI), however, is currently the biggest catalyst for the company.
Nvidia’s revenue and earnings grew at a breathtaking pace in recent quarters as customers lined up to get their hands on its AI chips. The company reportedly holds an impressive 92% share of the burgeoning AI chip market, and that dominant presence is expected to keep giving its growth massive shots in the arm: The AI chip market is expected to generate $305 billion in global revenue by 2030 (up from $29 billion in 2022).
Nvidia’s data center business generated $47.5 billion in revenue last fiscal year; assuming it remains the biggest player in this market at the end of the decade, that figure could be much higher for 2030. This, however, is not the only AI-related opportunity that Nvidia is set to capitalize on.
Demand for PCs capable of running AI software locally is set to increase at an annualized rate of 44% through 2028, according to market research firm Canalys. That impressive growth would ideally lead to stronger demand for the Nvidia GPUs that are deployed in laptops and desktops. As a result, it won’t be surprising to see the company’s gaming business taking off in the coming years and complementing its data center growth.
At the same time, Nvidia is gaining traction in the digital twin market. The company’s GPUs are being deployed to power the creation of 3D virtual representations of factories before those factories are actually constructed. These digital twins allow organizations to optimize their operations, look for problems, and improve efficiency before the physical factories are built. Such virtual spaces are also useful for a host of purposes after a real-world location is complete.
Demand for digital twins is expected to grow at an annual rate of 41% through 2035, generating annual revenue of $240 billion at the end of the forecast period.
In all, Nvidia management projects that it is sitting on an addressable market worth a whopping $1 trillion. If that’s indeed the case, the company is at the beginning of a terrific growth curve considering that it generated just under $61 billion in revenue last year.
With numerous lucrative growth opportunities and catalysts, it should keep growing at a nice pace for quite some time. That’s why investors looking for tech stocks that could help them grow their portfolios to the million-dollar level should consider buying Nvidia.
The case for Amazon
Amazon has benefited from the secular growth of the e-commerce market over the years, and it should continue to capitalize on this segment’s growth in the future. According to a forecast by Exactitude Consultancy, the global e-commerce market will clock a compound annual growth rate of 15% through 2030, generating just over $20 trillion in annual revenue at the end of that period.
Amazon is in a solid position to capitalize on this huge growth opportunity as it is the leading e-commerce player in key markets including the U.S., where it has a market share of nearly 40%, a number that has slowly crept higher over the years. However, e-commerce is not the only big growth driver that Amazon is set to make the most of.
The company is the largest player in the cloud infrastructure services market, with a share of 31% in the first quarter of 2024. Amazon Web Services (AWS), its cloud computing division, reported healthy year-over-year growth of 17% in Q1 and generated $25 billion in revenue. That was higher than the 13% growth in Amazon’s overall revenue last quarter to $143.3 billion.
Growing demand for cloud-based AI services should give AWS a big boost in the long run. Mordor Intelligence estimates that the cloud AI market could generate $274 billion in annual revenue in 2029 as compared to this year’s estimate of $67 billion. Amazon’s robust share in the cloud computing market and the growing adoption of AI-focused services on AWS suggests that the company is well placed to make the most of this opportunity.
The growth drivers discussed above tell us why analysts are expecting Amazon’s annualized earnings growth to accelerate to 30% for the next five years from 14% in the past five. The company’s improved earnings power could lead the market to reward the tech stock over the long run, making it an ideal pick for investors looking to add potential millionaire-maker stocks to their portfolios.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Nvidia. The Motley Fool has a disclosure policy.