Growth stocks have been key drivers of stock market gains this year, and the momentum doesn’t seem ready to stop. The S&P 500 confirmed its presence in a bull market back in January and since has gone on to reach new records — and today, it’s heading for a 25% annual gain after already climbing 24% last year. The good times for growth stocks may be far from over, considering that bull markets generally last a lot longer than bear markets. And growth stocks tend to do well during these times of market optimism.
Now here’s even more good news: You don’t have to worry about holding this sort of stock only during this particular bull market. A quality stock may deliver its top gains over the long term so whether the general market keeps on rallying or takes a pause, your well-chosen stocks may score a win for you over a period of years.
Where to start? Today, with just $200, you could buy a market-leading tech company trading at a bargain valuation and a young artificial intelligence (AI) player that’s in the early days of its growth story. Let’s check out these two fantastic players that could double your money over the long run.
Image source: Getty Images.
1. Alphabet
You probably know Alphabet (GOOG -1.74%) (GOOGL -1.85%) best for a tool you may use daily. And that’s Google Search. In the No. 1 spot, it holds about 90% of the worldwide search market. Google Search is the key to Alphabet’s long earnings growth track record, as advertisers flock to the platform to reach us — their target audience — where they know they’ll find us.
This has helped Alphabet increase revenue and profit into the billions of dollars over time. On top of this, Alphabet is making great progress in a second area that’s proving to be a significant growth driver: cloud computing. Google Cloud reached important milestones this year, surpassing $10 billion in quarterly revenue and $1 billion in quarterly operating profit. And Google Cloud continued increasing revenue and operating profit in the most recent quarter, past $11 billion and $1.9 billion, respectively.
Today, Alphabet shares trade for only 24 times trailing 12-month earnings, which leave them at dirt cheap levels compared to cloud computing rival and fellow tech company Amazon, for example.
GOOG PE Ratio data by YCharts
If Alphabet’s stock price doubled from today’s level of about $180, and earnings per share remained at today’s level of $7.53 on a trailing 12-month basis, the stock would trade for a price-to-earnings ratio of 48, just slightly higher than that of Amazon. But EPS likely won’t remain unchanged and instead will climb — estimates call for a double-digit annual increase over the coming five years. All of this supports the idea of big gains for Alphabet stock, while it maintains a higher but reasonable valuation for a growth stock.
2. SoundHound
SoundHound AI (SOUN 5.74%) is an innovator in the area of AI-driven voice technology. The company’s platform, protected by more than 200 patents, translates speech directly into meaning, passing by the “text” step typically used in the industry. SoundHound already is conquering the world of automobiles and restaurants, and progressively aims to broaden into a wide range of industries from financial to healthcare. The total addressable market is estimated to be about $140 billion, offering this young company plenty of room for growth.
SoundHound has shown its ability to grow in leaps and bounds quarter after quarter and expand its reach. In the most recent period, the company reported an 89% increase in revenue and boosted its guidance for full-year revenue to the range of $82 million to $85 million from the previous estimate of more than $80 million.
The company also made progress in customer concentration and industry diversification. Today, only 12% of revenue is attributed to the company’s biggest customer, and five different industries represent 5% to 25% of revenue.
The company isn’t yet profitable, which is understandable at this stage as SoundHound prioritizes growth. It recently completed the acquisition of Amelia, a conversational leader, and gained a greater presence in healthcare, finance, and insurance.
Today, you can pick up a SoundHound share for less than $7, and though the stock may look expensive trading at 27 times forward revenue estimates, it’s important to remember that this measure is rather short term. It doesn’t consider growth potential over the years to come, when this AI stock could take off and even double your money.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Alphabet and Amazon. The Motley Fool has a disclosure policy.
