Taking a buy-and-hold approach to great companies with strong earnings tailwinds remains one of the best ways for investors to build wealth over the long term. Even a relatively small investment, such as $1,000, can add up to much larger amounts over time if you put your money into the right companies.
With this in mind, read on to find out why two Motley Fool contributors think investing matters. Nvidia (NVDA -0.01%) and Netflix (NFLX -1.74%) Now that would be a great move.
Nvidia’s AI growth story is just beginning
Keith Noonan: There’s no doubt about that. There’s a lot of hype around artificial intelligence (AI) right now. On the other hand, AI is very likely to be the most important technological transformation of this century. Perhaps more than any other company, Nvidia is a key player in driving the artificial intelligence revolution.
Even after soaring nearly 225% throughout 2023 and reaching a market cap of around $1.18 trillion, the semiconductor specialist still has room for big wins for long-term investors. Nvidia’s graphics processing units (GPUs) and other high-speed processors have become essential hardware for running today’s most advanced AI applications. As a result, the company has achieved excellent results.
In the third quarter, Nvidia reported non-GAAP (adjusted) earnings per share of $4.02 on revenue of $18.12 billion. Meanwhile, analysts on average expected the business to report earnings of $3.37 per share and revenue of $16.18 billion.
Nvidia’s revenue increased 206% year over year, and adjusted earnings per share increased 593% compared to earnings per share of $0.58 in the year-ago period.
In particular, it doesn’t look like there will be any major performance degradation in the near future. Nvidia is projecting revenue of about $20 billion for the current quarter, which equates to about 231% growth.
In addition to providing core hardware products, Nvidia has also expanded into software, offering cloud-based AI computation as a service. Not only will these new services provide new revenue streams, but the increased emphasis on service-based models should help companies continue to secure strong profits.
A streaming pioneer with an attractive valuation
Paluev Tatevosyan: Netflix is one of my favorite growth stocks right now. The streaming pioneer has successfully weathered the surge of new entrants to the industry it started. Rather than taking customers away from Netflix, competition has made them more reliant on the streaming service for their content needs.
Netflix’s revenue is projected to jump from $6.8 billion in 2015 to $31.6 billion in 2022 and grow to $33.6 billion in 2023. This is proof that more and more people are finding Netflix’s services appealing. Given that streaming content is more convenient than watching over a cable or satellite connection (you can take your streaming subscription with you wherever you go), it’s no surprise that Netflix continues to expand.
Perhaps just as important to investors is that Netflix has grown profitably. Netflix’s operating profit is expected to jump from $306 million in 2015 to $5.6 billion in 2022, and reach $6.6 billion in 2023. This is an almost 22-fold increase over the past eight years.
I always like to see companies responsibly growing their business rather than chasing unprofitable customers. Additionally, Netflix’s business is built around economies of scale. Netflix costs about the same if 2 million people watch the movie as it does if 200 million people watch it.
Given these positive characteristics, I would be willing to pay a premium valuation for Netflix stock. That said, at 30 times forward price to earnings, I believe Netflix stock is trading at a fair value. For investors looking for growth stocks to invest $1,000 in, Netflix is a great option.