Investing in growth stocks is an effective strategy for building retirement wealth. Many leading companies are well-positioned to take advantage of the increasing integration of artificial intelligence (AI), allowing investors to secure strong returns without relying on uncertain start-ups.
Here are two outstanding growth stocks to consider buying and holding long-term for benefiting from the AI trend.
1. Nvidia
Nvidia (NVDA 1.45%) has seen a significant rise in its stock price, nearly reaching previous highs after a robust quarterly earnings report in May. Apart from providing its powerful chips to data centers, Nvidia has diversified its graphics processing unit (GPU) technology into automotive, gaming, and professional graphics markets.
The data center sector is currently its primary growth engine. Last quarter, sales from data centers surged 73% year-over-year to $39 billion, making up 88% of its total revenue. Analysts predict that increasing demand for Nvidia’s new Blackwell chips will elevate its annual revenue to $200 billion.
With industry spending on data center infrastructure expected to reach $1 trillion annually by 2029, Nvidia’s revenue potential could grow immensely. The company has invested in GPU advancements for many years and now holds a dominant market share, approximately 92% in the desktop GPU category. The need for enhanced AI computing systems continues to rise, with Nvidia collaborating globally to create AI-specific data centers.
Furthermore, Nvidia aims to assist in developing transformative products like humanoid robots through its Isaac GR00T N1 platform, and innovations in autonomous vehicles via its DRIVE computing platform. Last quarter, automotive revenue jumped 72% year-over-year to $567 million. The stock is currently trading at 33 times its forward earnings, a reasonable multiple for a company pivotal in the AI era.
2. Alphabet
Alphabet (GOOG -1.11%) (GOOGL -1.03%), the parent company of popular services like YouTube, Google, Android, and Gmail, offers a compelling investment opportunity after a recent stock dip. The current stock price may not fully reflect Alphabet’s potential in the AI space.
Alphabet’s vast user base, with seven products exceeding 2 billion users each, significantly fuels its advertising revenue, which grew by 12% year-over-year in Q1. Enhanced engagement in Google Search, thanks to the introduction of AI Overview features, has created more search queries and advertising opportunities.
The Google Gemini, its advanced language model, is now integral to its offerings. Companies are increasingly adopting Google Cloud for AI services, leading to a 28% revenue increase in this segment in the first quarter, with operating income more than doubling to $2.2 billion.
Despite concerns regarding competition from leading LLMs like OpenAI, Alphabet’s substantial financial resources should not be underestimated. The company generated $75 billion in free cash flow last year, significantly increased from five years prior. After investing $57 billion in technology and AI infrastructure, Alphabet’s AI initiatives, particularly with Gemini, are expected to enhance its services, reinforcing a competitive edge.
As Alphabet continues to expand its cloud and advertising divisions, the stock shows strong potential for outperforming the broader market—making it an opportune time to consider investing in Alphabet.
Suzanne Frey, an executive at Alphabet, serves on The Motley Fool’s board. John Ballard holds positions in Nvidia. The Motley Fool recommends Alphabet and Nvidia and has a disclosure policy.
