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2 Magnificent Growth Stocks To Buy Now And Hold Forever
Investing in the right companies can help you significantly grow your savings. To aid you in your search, here are two industry-leading companies that possess strong competitive advantages that could potentially lead to a lifetime of compounding returns for investors.
1. Alphabet (Google)
Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) stock hit a new high this month of $200. The stock has delivered excellent returns for investors in recent years, but even with a market cap of nearly $2.5 trillion, there's still a lot of growth potential ahead that can deliver great returns.
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Alphabet's investments in artificial intelligence (AI) should lead to increasing positive sentiment around the stock over the next few years. Google's Gemini AI recently climbed to the top of the Chatbot Arena leaderboard, which ranks the best large language models (LLMs) and AI chatbots. OpenAI's ChatGPT has been widely considered the best AI since it launched in 2022, but Gemini's recent gains show that Alphabet's innovation engine is alive and well.
Gemini already powers several of the company's products and platforms that have at least 2 billion monthly users, including Google Maps. AI could have a big impact on the company's ability to grow advertising revenue, especially in Search -- its largest source of ad revenue. AI features like Google Lens and Circle to Search are allowing people to search for new things, which opens up new opportunities to show ads to users.
Quantum computing is another opportunity that could unlock returns for investors. In December, Google unveiled its Willow quantum chip, which achieved the fastest computation speed using a standard benchmark test. It may take years before a revenue opportunity opens up, but Willow is another indicator that Alphabet's innovation can unlock more growth for investors.
These innovations are fundamentally supported by the company's financials. Alphabet earned $94 billion in net income on $339 billion of revenue on a trailing-12-month basis through the third quarter of 2024. Importantly, the company achieved a high return on capital employed of 34%, which underscores the potential to drive more returns for shareholders as it continues to spend capital on AI and other technologies.
With Google stock trading at a reasonable forward price-to-earnings (P/E) multiple of 22, now is a great time to buy shares.
2. Netflix
Netflix (NASDAQ: NFLX) has created enormous wealth for shareholders. As of Dec. 31, 2024, the stock price is up roughly 83,000% since 2002 when it was a DVD-by-mail rental service. But you could have waited until 2014 when it was head-deep in streaming and still earned a 1,726% gain on investment.
But a look at the most recent quarterly update shows it still has plenty of growth potential ahead. Revenue grew 16% year over year in Q4, driven by subscriber growth. Although it's the leading platform, Netflix still added an impressive 41 million new paying members in 2024.
The investment case is simple. Netflix spends billions on content every year yet generates the highest margins of any streaming service. Netflix earned $8.7 billion in net income on $39 billion in revenue in 2024. The company has achieved tremendous scale that can help it expand its content library to satisfy customers and protect its lead.
The most telling indicator of Netflix's competitive advantage is its ability to increase prices. Members don't mind paying an extra few dollars when Netflix has so much content available. Its current premium plan is more than double the price it charged 10 years ago, yet it continues to grow its member base.
Netflix is truly a magnificent growth stock. While the stock's valuation is not cheap at a forward P/E of 39, analysts expect it to grow earnings at an annualized rate of 23% in the coming years as management focuses on improving profit margins. That should lead to solid returns.
Should you invest $1,000 in Alphabet right now?
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Netflix. The Motley Fool has a disclosure policy.
