Technology stocks have outperformed the broader market by a wide margin over the past decade – illustrated by the fact that the Nasdaq-100 Technology Sector Index posted a gain of 421% over the period compared to the S&P500 index increase of 178%. The outperformance is not surprising. Technology companies tend to benefit from disruptive trends, allowing them to achieve outsized growth.
The top tech stocks, such as Nvidia (NASDAQ: NVDA) And Amazon (NASDAQ: AMZN)have even easily surpassed the performance of the Nasdaq-100 during that period, boosting the portfolios of long-term investors.
To be fair, it would be difficult for Nvidia and Amazon – now two of the largest companies in the world – to replicate such stellar profits over the next decade. However, buying these two tech giants and holding them as part of a diversified portfolio has a high chance of being a smart move in the long term. Both companies still have tremendous growth potential in multiple markets, which is why they could become ideal choices for investors looking to grow a million-dollar portfolio.
The case for Nvidia
Nvidia has come a long way. Twenty years ago, the company largely sold graphics processing units (GPUs) for use in gaming personal computers (PCs) and workstations, but today its hardware (and software) powers compute-intensive applications in data centers, advanced driver assistance systems, factories, and the creation of digital twins, among others. However, artificial intelligence (AI) is currently the biggest enabler for the company.
Nvidia’s revenue and profits grew at a breathtaking pace in recent quarters as customers lined up to get their hands on its AI chips. The company reportedly has an impressive 92% share of the fast-growing AI chip market, and that dominant presence is expected to continue to massively boost its growth: the AI chip market is expected to reach $305 billion globally by 2030 generate revenue (an increase of $29 billion by 2022).
Nvidia’s data center business generated $47.5 billion in revenue last fiscal year; assuming it remains the largest player in this market at the end of the decade, that figure could be much higher by 2030. However, this isn’t the only AI-related opportunity that Nvidia will benefit from.
According to market research firm Canalys, demand for PCs that can run AI software locally will increase 44% year-on-year through 2028. That impressive growth would ideally lead to stronger demand for the Nvidia GPUs used in laptops and desktops. As a result, it will come as no surprise that the company’s gaming business will boom in the coming years and complement its data center growth.
At the same time, Nvidia is gaining ground in the digital twin market. The company’s GPUs are used to enable the creation of virtual 3D representations of factories before those factories are actually built. These digital twins allow organizations to optimize operations, identify problems and improve efficiency before the physical factories are built. Such virtual spaces are also useful for a variety of purposes after a real-world location is completed.
Demand for digital twins is expected to grow 41% annually through 2035, generating annual revenues of $240 billion by the end of the forecast period.
In total, Nvidia management expects it to be in an addressable market worth as much as $1 trillion. If that is indeed the case, the company is at the beginning of a tremendous growth curve, as it generated just under $61 billion in revenue last year.
With plenty of lucrative growth opportunities and catalysts, the company should continue to grow at a comfortable pace for quite some time. That’s why investors looking for tech stocks that can help them grow their portfolios to the million-dollar level should consider buying Nvidia.
The case for Amazon
Amazon has benefited from the continued growth of the e-commerce market over the years and should continue to benefit from the growth of this segment in the future. According to a forecast by Exactitude Consultancy, the global e-commerce market will experience a compound annual growth rate of 15% through 2030, generating just over $20 trillion in annual revenue by the end of that period.
Amazon is in a solid position to capture these massive growth opportunities as it is the leading e-commerce player in key markets including the US where it has a market share of almost 40%, a number that has been slowly increasing over the years increased . However, e-commerce isn’t the only major growth driver that Amazon will make the most of.
The company is the largest player in the cloud infrastructure services market, with a 31% share 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 total 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 by 2029, up from this year’s estimate of $67 billion. Amazon’s robust share of the cloud computing market and growing adoption of AI-focused services on AWS suggest the company is well-placed to make the most of this opportunity.
The growth drivers discussed above tell us why analysts expect Amazon’s annualized earnings growth to accelerate to 30% over the next five years, up from 14% over the past five years. The company’s improved earnings power could lead the market to reward tech stocks in the long term, making it an ideal choice for investors looking to add potential millionaire stocks to their portfolios.
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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 and recommends positions in Amazon and Nvidia. The Motley Fool has a disclosure policy.
2 Top Tech Stocks That Can Make You a Millionaire was originally published by The Motley Fool
