In this article, we will take a look at the 10 stocks that will make you rich in 5-10 years.
Economic Resilience and Surprising Rate Cut Amid Geopolitical Tensions
The US economy grew by 3% in the second quarter, and the stock market hit all-time highs in the third quarter, averting fears of a recession at hand. While the economy has remained resilient for the better part of the year, the US Federal Reserve’s 50 basis point rate cut surprised many analysts.
Jamie Dimon believes the steep cut might be justified as geopolitical uncertainties can potentially disrupt the gains achieved by affecting supply chains and triggering uncertainties and fears in the market.
READ ALSO: Bill Ackman Stock Portfolio: 8 Top Stock Picks and 10 Blue-Chip Stocks to Buy at 52-Week Lows.
Powell and other Fed officials are open to further lowering interest rates after last month’s half-point cut, but there’s market debate on the pace.
Soaring tensions in the Middle East with Israel invading Lebanon and threatening to attack Iran have triggered a layer of uncertainty, which Dimon believes could have a significant impact on the economy. Consequently, the banker believes that the 50 basis point cut could offer the much-needed economic support as inflation continues to drop.
Nevertheless, James Demerit, Main Street Research CIO, believes the upward momentum in the equity markets will persist as the macro environment improves. While valuations appear to have gotten out of hand, there are still opportunities for stocks trading below their fair value as the investment environment improves.
Apart from the magnificent seven stocks whose valuations have gotten out of hand, other stocks are trading at 16 times earnings, which, according to Demmert, is cheap considering the strong fundamentals that support a further rally. Companies that have consistently grown sales and profits should continue delivering regardless of the uncertainties around the US election and soaring geopolitical tensions.
According to Emily Bowersock Hill, CEO of Bowersock Capital Partners, it is time to be upbeat about the market heading into year-end. “The bull market has survived the year’s historically weakest quarter,” said Hill in an interview with CNBC. “It is likely to remain intact through at least the end of the year, as earnings remain strong, interest rates are moving lower and consumers are still spending.”
Which Stocks Could Make You Rich in 5 to 10 Years?
When considering which stocks to buy, it’s beneficial to ask, “Which industries are experiencing the most rapid growth?” Despite some sectors facing challenges post-pandemic, many are flourishing, offering abundant opportunities. The global economy is rapidly evolving, with industries like artificial intelligence (AI), healthcare, travel, online retail, cybersecurity, and green energy experiencing significant growth. The AI market alone is projected to reach $407 billion by 2027 (according to estimates from Markets and Markets). The Bureau of Labor Statistics projects that between 2020 and 2030, total employment in the United States will expand by 11.9 million, or 7.7%, to 165.4 million from 153.5 million.
Some of the top stocks that will make you rich in 5 to 10 years are companies that can rally as the global economy grows on the back of favorable monetary policies. Additionally, they include stocks of companies that are leaders in their respective fields and well-poised to benefit from technological changes such as artificial intelligence.
In an interview with CNBC, Savita Subramanian, BofA Securities head, reiterated utilities and large-cap real estate stocks are well positioned to perform heading into year end. Likewise, industrials and financials should receive a significant boost if the overall economy improves.
According to Subramanian, the idea of the Fed cutting is not only liquidity inducing that should benefit the equity market but a move that ends up cutting money market yields. With liquidity slowly moving out of short-term bonds, most of it is ending up in equity markets as investors take note of high-risk reward opportunities at highly discounted valuations. Subramanian believes dividend stocks and growth stocks are well-positioned to generate significant value going forward.
With this economic perspective in mind, let’s start our list of stocks that will make you rich in 5-10 years.
Our Methodology
To compile the list of the stocks that will make you rich in 5-10 years, we sifted through multiple reports and rankings and compiled an initial list of 20 possible stocks that experts and analysts believe have multi-year growth opportunities. We then selected the 10 stocks that were the most popular among hedge funds and ranked them in ascending order based on the number of hedge funds that held stakes in them, as of the end of Q2 2024.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Stocks That Will Make You Rich in 5-10 Years
10. Fortinet, Inc. (NASDAQ:FTNT)
Number of Hedge Fund Holders as of Q2: 42
Fortinet, Inc. (NASDAQ:FTNT) is a cyber-security company that stands out for combining specialized hardware products with its proprietary software to protect networks. Its FortiGate firewall controls more than 50% of the global market share, with a base of more than 500,000 customers.
Fortinet, Inc. (NASDAQ:FTNT)’s largest customer segment, according to management, is large enterprises. That’s important because switching software providers can be expensive for large businesses, which frequently stay with them for years. There are many things to like about Fortinet at the moment, including the company’s expansion into new services with Unified SASE and its large customer base that is committed to its platform.
When Unified SASE is combined with Security Operations and Secure Networking, the company’s other business segments, Fortinet projects that its total addressable market will grow from $150 billion to $208 billion by 2027.
Approximately a quarter of Fortinet’s revenue comes from its SASE category, which is growing quickly. The company’s service revenue increased by 24% year over year in the most recent quarter, and for the next five years, it anticipates compound annual sales growth of 18%.
The company is positioned to benefit from the rise of AI and related data centre infrastructure. According to the company, the secure networking market is expected to grow at an average annual rate of 15% through 2028. By combining automation and machine learning to improve threat detection and security monitoring, Fortinet is also placing a significant bet on its own artificial intelligence capabilities.
There are still many long-term prospects for Fortinet in the cybersecurity market. For instance, Fortinet has benefited from the growing trend of businesses consolidating their security services by expanding its product line to include the Unified Secure Access Service Edge (SASE) service.
Consequently, Fortinet, Inc. (NASDAQ:FTNT) is one of the stocks that will make you rich in 5-10 Years, given the tremendous opportunities for growth as it expands its footprints into various segments. Insider Monkey’s 2Q 2024 data revealed that 42 hedge funds had stakes in Fortinet, Inc. (NASDAQ:FTNT), compared to 44 in the preceding quarter.
Here is what Conestoga Capital Advisors said about Fortinet, Inc. (NASDAQ:FTNT) in its first-quarter 2024 investor letter:
“Fortinet, Inc. (NASDAQ:FTNT): FTNT is the worldwide market share leader in network security firewalls (by units). During the quarter, FTNT reported a significant beat in billings, showing early gains from the strategic pivot to non-firewall solutions (SASE, SecOps) announced late last year. This follows two consecutive disappointing quarters, and the stock has nearly recovered to 2023 highs. While FTNT is still digesting a pull forward of product-led growth, the recovery appears to be on the right track and should drive higher than expected margins in 2024.”
9. Royal Caribbean Cruises Ltd. (NYSE:RCL)
Number of Hedge Fund Holders as of Q2: 48
Royal Caribbean Cruises Ltd. (NYSE:RCL) is a travel service company that operates cruises under the Royal Caribbean International, Celebrity Cruises, and Silversea Cruises brands. Never before has the second-largest cruise line operator in the world performed better than it does now. Revenue from trails is at an all-time high. Additionally, customer deposits have reached a new high, which bodes well for continued success in the upcoming quarters.
Regarding profitability, Royal Caribbean Cruises Ltd. (NYSE:RCL) revealed that its revenue for the second quarter of 2024 increased by 1.67% yearly to $4.1 billion. An increase in passenger ticket sales and an increase in onboard and other revenues was the main driver of this growth. In addition, the business restored a quarterly dividend at $0.40 per share, demonstrating improved cash flow and financial stability.
Additionally, Royal Caribbean Cruises Ltd. (NYSE:RCL) is inexpensive. Even with the recent increase, the shares are only worth 13 times what they will be worth next year. It may become relatively inexpensive even after it doubles in value from here because earnings should continue to grow faster than revenue.
In less than two years, the stock has more than tripled in value, and its forward multiple is in the low teens. Given that it was the first publicly traded cruise line to turn a profit following the pandemic underscores its ability to bounce back from slowdowns.
According to Insider Monkey’s database, 48 hedge funds held stakes in Royal Caribbean Cruises Ltd. (NYSE:RCL) at the end of Q2 2024.
Ariel Investments, an investment management firm, shared insights in its second-quarter 2024 investor letter, stating:
“Global cruise vacation company, Royal Caribbean Cruises Ltd. (NYSE:RCL), advanced on another quarterly earnings beat and subsequent raise in full-year guidance. Stronger than anticipated consumer demand, healthy onboard spend, robust pricing and solid cost containment lifted recent results. Additionally, RCL is benefitting from several new megaships, more island destinations and re-entry into the China market. The resiliency of the core cruise consumer, in combination with management’s superior operational expertise and revised earnings outlook, lays the foundation for RCL to exceed its three-year strategic imperative, the Trifecta Program, a year earlier than expected.”
8. Palo Alto Networks Inc (NASDAQ:PANW)
Number of Hedge Fund Holders as of Q2: 66
Palo Alto Networks, Inc. (NASDAQ:PANW) is one of the stocks that will make you rich in 5-10 Years as cyber threats intensify. The company has achieved success by launching several ground-breaking inventions and developing an all-encompassing cybersecurity platform that includes cloud, endpoint, and network security.
Over the past five years, the stock has returned 394%, riding a wave of robust growth and increasing profitability. Likewise, Palo Alto Networks, Inc. (NASDAQ:PANW) is in a good position to benefit from new cyber-attacks. It boasts a complete defence platform, with a strong platform offering product leadership in 23 cyber categories.
The company’s competitive advantage is highlighted by the fact that Change Healthcare hired it to clean up its attack. Its recent expansion further supports this theory. Over the previous five years, revenues have increased at a compound annual growth rate of 23%.
Additionally, it is a technological leader in many important product categories, such as secure access service edge (SASE), which bundles various network and cloud security services into a single package, despite the fact that this always raises questions about the quality of security.
Palo Alto Networks, Inc. (NASDAQ:PANW) exceeded its own projections for revenue growth for the third quarter of its fiscal 2024 by growing revenue by 15% year over year to $2 billion. While the stock is trading at a premium with a price-to-earnings multiple of 52, it is expected of a company with tremendous opportunities for growth.
By the end of the second quarter, 66 hedge funds tracked by Insider Monkey had positions in Palo Alto Networks, Inc. (NASDAQ:PANW). Citadel Investment Group emerged as the largest shareholder, with 2.84 million shares in the company.
TimesSquare Capital Management U.S. Focus Growth Strategy stated the following regarding Palo Alto Networks, Inc. (NASDAQ:PANW) in its Q2 2024 investor letter:
“Our cybersecurity holdings were also beneficial to the strategy this quarter. The global provider of network and cloud-based cybersecurity systems, Palo Alto Networks, Inc. (NASDAQ:PANW), chipped in with a 19% return. Its revenues and earnings were higher than anticipated as Palo Alto shifted its marketing strategy to emphasize larger platform contracts.”
7. Intuitive Surgical, Inc. (NASDAQ:ISRG)
Number of Hedge Fund Holders as of Q2: 67
Intuitive Surgical, Inc. (NASDAQ:ISRG) is a healthcare company that develops, manufactures, and markets products that enable physicians and healthcare providers to enhance the quality of and access to minimally invasive care.
Its Robots are becoming increasingly popular for enhancing minimally invasive procedures. By the second quarter of 2024, the company had installed more than 9,000 systems. Given that the installed base grew 14% year over year in Q2 underlines the healthy growth momentum.
The second-quarter earnings report from Intuitive Surgical, Inc. (NASDAQ:ISRG) showed a mixed bag of encouraging outcomes. Thanks to a 17% increase in the number of procedures carried out while utilizing its da Vinci robotic surgical suites, net income increased by 26.7% to $527 million.
Things continue to look positive in the long run because one of Intuitive’s most significant advantages is that it regularly expands the number of hospitals where its systems are installed and then upsells current clients on newly designed equipment and training PROGRAMS.
The market for robotic surgical systems is far from saturated, despite the fact that competition will only get stronger shortly. Furthermore, Intuitive Surgical, Inc. (NASDAQ:ISRG)’s rivals are insignificant enough to pose a threat over the long term, at least not yet.
With no debt, Intuitive is in a solid financial position with over $3 billion in cash, equivalents, and investments. Nevertheless, Intuitive Surgical, Inc. (NASDAQ:ISRG) trades at a premium with a forward price-to-earnings multiple of 64. As of the second quarter, 67 hedge funds tracked by Insider Monkey held stakes in the stock. Fisher Asset Management was the largest stakeholder, holding 4.70 million shares valued at $2.09 billion.
6. Tesla Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders as of Q2: 85
Tesla, Inc. (NASDAQ:TSLA) is the pioneer of electric vehicles, enjoying a first-move advantage in refining its technology to the extent of delivering self-driving cars. While most automakers are interested in developing autonomous cars, Tesla has already made a mark by building an autonomous driving platform, called Full Self Driving, allowing it to ship millions of cars and generate billions in revenue and earnings.
Even though Tesla, Inc. (NASDAQ:TSLA) is active in other industries, such as solar energy and battery storage, its automobile division still generates more than 90% of its company’s revenue. According to several estimates, it has a 50%–80% market share.
Furthermore, EV demand is increasing even though projections have decreased, leaving the company in a solid position to generate long-term value. Domestic EV sales are now predicted to increase by more than 10% yearly over the next five years,
By 2029, EV sales are predicted to reach $1 trillion globally. This is encouraging since Tesla, Inc. (NASDAQ:TSLA) is expected to hold a 39.4% global market share, which is higher than the combined market shares of the next eight competitors.
Compared to its rivals, Tesla possesses greater capital, greater brand awareness, and greater manufacturing capacity. Furthermore, a number of traditional automakers are currently reversing their EV plans, which might enable the business to hold onto its leading position in the market for some time to come.
Tesla, Inc. (NASDAQ:TSLA)’s sales decreased in Q2 for the second time, following an 8.5% decline in the first quarter. However, that does not indicate that the company is in trouble. The EV giant is well positioned to bounce back amid the transition from fossil fuel cars as it also revamps its product line.
In July, Tesla, Inc. (NASDAQ:TSLA) ended a five-month losing streak with a 1.2% year-over-year increase in registrations. A significant portion of that gain came from the Cybertruck, a fantastic achievement, given that Tesla only produced 5,175 Cyber Trucks compared to 5,546 for all other electric pickups. In total, 85 hedge funds were long Tesla, Inc. (NASDAQ:TSLA) in the second quarter, with a total stake value of $4.9 billion.
ClearBridge Small Cap Value Strategy stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its Q2 2024 investor letter:
“The strength in the stock market adds significantly to that enormous transfer of wealth, which one could argue is good for shareholders. But is it causal? That is, did the stock market do well because CEOs got large stock grants? Are the CEOs just the lucky recipients of a windfall when the market goes up and their employees perform well? Or do they require huge grants to do their jobs that no one else could possibly do as effectively?
Tesla, Inc. (NASDAQ:TSLA), and most of its shareholders, certainly think the latter is true. In 2018, Tesla’s board of directors crafted a pay package for CEO Elon Musk that would award him 12 tranches of 10-year, fixed-price options on 1% of company stock for every $50 billion in market cap the stock added. In total, the options would be for 304 million shares of the company at $23.34 a share. He would receive no other compensation, until or unless the board decided otherwise. Shareholders approved that pay package, and the stock added all that market cap and more, giving Musk the right to buy 10% of the company for $50 billion less than it was worth, adding to his existing 13% stake. Minority shareholders sued, and a court sided with them and expunged the package in January 2024. “The process leading to the approval of Musk’s compensation plan was deeply flawed,” ruled Judge Kathaleen McCormik of the Delaware Court of Chancery as part of a 200-page decision. It seemed like a long-awaited check on excessive compensation to one individual for the achievements of an entire company….” (Click here to read the full article)
5. Eli Lilly and Company (NYSE:LLY)
Number of Hedge Fund Holders as of Q2: 100
Eli Lilly and Company (NYSE:LLY) is one of the stocks that will make you rich in 5-10 years while diversifying an investment portfolio into the healthcare sector focusing on the development and marketing of pharmaceuticals. The pharmaceutical company has become the largest healthcare company by market capitalization, riding a wave of solid financial results and excellent regulatory progress.
Tirzepatide, marketed under Mounjaro and Zepbound, has significantly accelerated the growth of Eli Lilly and Company (NYSE:LLY). Mounjaro and Zepbound had $3.1 billion and $1.2 billion in sales, respectively, in the second quarter. That’s more than $4 billion in sales in just three months in an industry where most drugs never make $1 billion a year at any point in their patent-protected life cycles.
Likewise, Eli Lilly and Company (NYSE:LLY) is already looking into the future as it looks to reduce its reliance on specific drugs. Its pipeline of late-stage development includes multiple products that show promise. It is developing two weight loss medications, orforglipron and retatrutide, which, by some estimates, could each bring in well over $1 billion in revenue annually by 2030.
The company’s once-weekly insulin medicine could also earn regulatory approval within the next year or two. Eli Lilly recently achieved yet another significant regulatory victory when the FDA authorized Kisunla, also known as donanemab, as an Alzheimer’s disease treatment.
Eli Lilly and Company (NYSE:LLY)’s dividend plan also appears appealing. Its yield of 0.58% is low, but that’s because its share price has been rising dramatically recently. Over the last five years, the company has increased payouts by 101.6%.
Eli Lilly and Company (NYSE:LLY) was a part of 100 hedge fund portfolios at the end of Q2 2024, down from 109 in the previous quarter, as per Insider Monkey’s database. Fisher Asset Management owned the largest stake in the company, worth over $4.4 billion.
Here is what PGIM Jennison Health Sciences Fund said about Eli Lilly and Company (NYSE:LLY) in its Q2 2024 investor letter:
“Eli Lilly and Company (NYSE:LLY) is a diversified biopharmaceutical company with core franchises in Diabetes, Obesity, Immunology, Neurodegeneration, and Oncology. The company is one of the two global leaders in diabetes with blockbuster products in Trulicity and recently launched Mounjaro (tirzepatide) to serve this large underserved market. To date, the Mounjaro launch is the strongest for any diabetes drug ever launched, which we attribute to off label usage in the obesity indication as well as on label use in diabetes. We believe the tirzepatide (the generic name for Mounjaro) franchise is also uniquely positioned to grow substantially from here thanks to its recent approval for obesity. To that note, in late 2023, Eli Lilly received approval for tirzepatide in obesity and is commercializing it for obesity under a new brand name, Zepbound. While still early in the launch, uptake has been extremely strong, exceeding that of both Wegovy and Mounjaro at the same timepoint in their launches. While Alzheimer’s Disease has been a tough market for drug developers, Eli Lilly has breakthrough designation from the food and drug administration (FDA) for donanemab and recently presented Phase III pivotal trial data that positions donanemab as the most efficacious drug in the class. In June, the FDA advisory committee voted unanimously in favor of donanemab as an effective treatment where the benefits outweigh the risks, praising the therapy as innovative. Donanemab was then approved under the brand name Kisunla in early July. Eli Lilly also has exciting franchises in dermatology, immunology, and oncology that are starting to add meaningfully to growth. With a proven history of strong commercial execution and one of the highest research and development (R&D) success rates in the industry, we see opportunity for continued success. With a lack of meaningful patent expirations for the rest of the decade. Eli Lilly is uniquely positioned amongst its larger-cap peers. Recent positive performance has been driven by the continued strong growth of Mounjaro and Zepbound, which led to a big guidance raise on the 1Q call, an unusual action for Eli Lilly this early in the year, which speaks to their confidence in the strong trends they are seeing.
4. Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Holders as of Q2: 130
Broadcom Inc. (NASDAQ:AVGO) is one of the top technology companies, having made a name for itself in developing and supplying semiconductor devices. While Nvidia is a leader in artificial intelligence graphics, Broadcom is making a mark on application-specific integrated circuits (ASICs)
The company is gaining traction in a growing market and currently produces the top ASICs used by businesses needing general-purpose AI chips, such as large tech companies like Meta and Alphabet. J.P. Morgan projects the addressable market for Broadcom Inc. (NASDAQ:AVGO)’s custom AI chips could reach $150 billion over the next four to five years, thanks to the company’s pioneering efforts in this field.
Artificial intelligence (AI) is a major factor in Broadcom Inc. (NASDAQ:AVGO)’s business growth. More precisely, Broadcom stated in June that it was expected to sell over $11 billion worth of AI chips this year. The company’s AI-focused chip sales more than tripled to $3.1 billion in the second quarter.
Not only is that incredible year-over-year growth, but Broadcom’s AI sales accounted for an impressive 24% of the company’s sales in the quarter, total revenue totalling $13.1 billion.
During the earnings call, Broadcom Inc. (NASDAQ:AVGO) CEO Hock Tan stated that “customers continue to scale up and scale out their AI clusters” and that the demand for custom AI accelerators is still growing. As chip customers keep returning for more, the company should generate more revenue and earnings to return to shareholders.
Here is what Columbia Threadneedle Global Technology Growth Strategy said about Broadcom Inc. (NASDAQ:AVGO) in its Q2 2024 investor letter:
“Broadcom Inc. (NASDAQ:AVGO) also performed well during the quarter, as the company reported better-than-expected earnings, with an upside from demand related to AI. This long-term holding is strongly positioned to benefit from continued AI demand, with AI sales in the quarter up 400% over the prior year. Overall, AI-related revenue accounted for 30% of total revenue in 2024 and is on pace to represent a majority of the company’s revenue within two to three years.”
3. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders as of Q2: 179
NVIDIA Corporation (NASDAQ:NVDA) has made a name for itself as a poster child of the artificial intelligence race and one of the stocks sure to make any investor rich in the next five to ten years. The company is known for producing the most sought-after graphics processing units (GPUs) that can handle more complex workloads, such as training large language models and AI applications.
Strong demand was the catalyst behind NVIDIA Corporation (NASDAQ:NVDA), accounting for 98% of shipments of GPUs for data centers last year, and it has a market share of more than 80% for AI chips. One reason the company has achieved such a dominant position is the superior performance of its hardware.
Additionally, the CUDA software ecosystem contributes to the company’s success in gaining such a strong market position. Hundreds of software libraries make it easier to develop GPU-accelerated applications with CUDA. Since Nvidia is the only chipmaker offering anything like CUDA, Nvidia GPUs have become the industry standard for data center accelerators.
NVIDIA Corporation (NASDAQ:NVDA) is anticipated to grow quickly and generate more shareholder value due to the strong demand for AI infrastructure. Grand View Research projects that through 2030, the market for AI accelerators will grow at a rate of 29% annually, while spending on AI services, software, and hardware will compound at a rate of 36% annually. This is encouraging for Nvidia’s investors.
The strong demand for the company’s GPUs was the catalyst behind the 122% year-over-year growth in revenue in Q2 to $30 billion. Earnings were up 168% from last year to $0.67 a share. Given that the artificial intelligence race is just starting, it affirms why NVidia is one of the stocks that will make you rich in 5-10 years, going by solid financial results.
At the close of Q2 2024, 179 investors were bullish on NVIDIA Corporation (NASDAQ:NVDA), down from 186 in the previous quarter.
Ithaka Group’s Ithaka US Growth Strategy stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q2 2024 investor letter:
“NVIDIA Corporation (NASDAQ:NVDA) is the market leader in visual computing through the production of high-performance graphics processing units (GPUs). The company targets four large and growing markets: Gaming, Professional Visualization, Data Center, and Automotive. NVIDIA’s products have the potential to lead and disrupt some of the most exciting areas of computing, including: data center acceleration, artificial intelligence (AI), machine learning, and autonomous driving. The reason for the stock’s appreciation in the quarter was twofold: First, the stock benefited from tremendous excitement surrounding the further development of generative AI and the likelihood this would necessitate the purchase of a large number of Nvidia’s products far into the future; Second, Nvidia posted another strong beat[1]and-raise quarter, where the company upped its F2Q25 revenue guidance above Street estimates, showcasing its dominant position in the buildout of today’s accelerated computing infrastructure.”
2. Microsoft Corp (NASDAQ:MSFT)
Number of Hedge Fund Holders as of Q2: 279
Amid the artificial intelligence race, Microsoft Corp (NASDAQ:MSFT) is arguably one of the stocks that will make you rich in 5-10 years, given the investments it’s made around the emerging technology. The company is also leveraging the technology to strengthen its cloud computing solution under Azure.
Azure is the source of the largest AI opportunity from all this. With a current % market share of 25%, Microsoft Corp (NASDAQ:MSFT) is the second-largest provider of cloud computing services after Amazon, and its new AI tools are helping it grow even further.
During the Q4 earnings call, the management reported that Azure now has 60,000 AI customers, which is approximately 60% more than it had during the same quarter last year. Given that Goldman Sachs projects that the cloud computing industry will generate $2 trillion in sales by 2030, Microsoft should be one of the beneficiaries, allowing it to generate more shareholder value.
AI is already driving some of that growth, and Microsoft stands to gain as more businesses turn to its AI cloud services to improve their own AI offerings.
Additionally, it has turned to technology to strengthen and enhance user experience on its office solutions, including Microsoft Office. Its investment of close to $13 billion in ChatGPT parent OpenAI has also had a hand in strengthening its search tool Bing sits to take on Google.
Microsoft Corp (NASDAQ:MSFT) regularly reports strong financial results; the most recent quarter was no exception. Its operating income and revenue grew by 15% annually, which is remarkable for a business of this size. Earnings per share (EPS) exceeded analysts’ estimates, landing at $2.95.
Microsoft Corp (NASDAQ:MSFT)’s ability to boost profitability while growing steadily is demonstrated by the growth of its earnings per share, affirming its ability to make shareholders rich. Over the previous five years, its outstanding share count has only dropped by about 3%, so a large portion of the growth can be linked to its improved earnings.
Amid the earnings growth, Microsoft continues to reward investors with a 0.80% dividend yield even as it trades at a premium with a price-to-earnings multiple of 31. In the second quarter, 279 hedge funds held positions in Microsoft (NASDAQ:MSFT), and their stakes amounted to $89.07 billion.
Baron Opportunity Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter:
“Microsoft Corporation (NASDAQ:MSFT) is the world’s largest software and cloud computing company. Microsoft was traditionally known for its Windows and Office products, but over the last five years it has built a $135 billion run-rate cloud business, including its Azure cloud infrastructure service and its Office 365 and Dynamics 365 cloud-delivered applications. The stock contributed to performance because of continued strong operating results and investor enthusiasm regarding Microsoft’s leadership across the secular megatrends of AI and cloud computing. Recent business momentum continued to show evidence of the strength and attractiveness of Microsoft’s product portfolio among its customer set: (1) Azure OpenAI – its suite of AI services – is now used by 65% of the Fortune 100 and contributed 7% of Azure revenue (an annualized run rate of $5.2 billion); (2) GitHub Copilot – its AI code writing service – is bending the productivity curve for developers (reports of 40%- plus improvements in developer efficiency) and now has 1.8 million paid subscribers, with growth accelerating to over 35% quarter-over-quarter; and (3) Copilot Studio – its AI application service that makes it easier for anyone to build an application, automate a workflow, or create a Copilot using natural language. 30,000 organizations across every industry have used Copilot Studio to customize Copilot for Microsoft 365 or build their own, up 175% quarter-over-quarter. In the March quarter, Microsoft again reported better-than-expected financial results, highlighted by Microsoft Cloud growing 23% year-over-year, with the fastest commercial bookings in six quarters, and Azure accelerating to 31% constant currency growth, up from 28% in the previous quarter. June quarter guidance came in-line with consensus, but the company provided higher guidance for the most important segment, Intelligent Cloud, on the back of continued strong trends across Azure and Azure OpenAI. We remain confident that Microsoft is one of the best-positioned companies across the overlapping software, cloud computing, and AI landscapes.”
1. Amazon.com Inc (NASDAQ:AMZN)
Number of Hedge Fund Holders as of Q2: 308
There is no doubt that Amazon.com, Inc. (NASDAQ:AMZN) is one of the stocks that will make you rich in 5-10 years, given its market-leading position in e-commerce, cloud computing and electronics. Additionally, it is making a name for itself amid the artificial intelligence race as it leverages technology to strengthen its competitive edge.
Over the past two years, Amazon.com, Inc. (NASDAQ:AMZN)’s venture into generative AI has generated the most excitement for the stock. Consumers are utilizing and benefiting from Amazon’s AI tools, which should allow the company to maintain its leading position in cloud computing and increase its market share as it invests in improvements and new features. In the second quarter, Amazon Web Services (AWS) sales growth accelerated to 18.8% year over year, attributed to the integration of AI.
AI might offer Amazon.com, Inc. (NASDAQ:AMZN) new opportunities and the biggest growth prospects. However, it is making investments in its other ventures and yielding outcomes. For some time now, Amazon’s fastest-growing business has been advertising. In the second quarter of this year, revenue climbed by $2 billion, or 20% yearly.
Through sponsored ads on its e-commerce platform, it already provides unrivaled exposure to advertisers targeting Amazon customers; now, with the launch of its new ad-supported Prime streaming tier, Amazon and advertisers will have even more opportunities.
Revenues were up by 10% in the second quarter to $148 billion, attributed to Amazon.com, Inc. (NASDAQ:AMZN)’s e-commerce and cloud computing dominance. Due to each of these divisions’ advantages, investors should anticipate sustained growth from both of them. In the US, e-commerce only accounts for about 16% of retail sales.
As its cloud computing and e-commerce businesses grow, Amazon.com, Inc. (NASDAQ:AMZN) is witnessing excellent margin expansion and revenue growth, affirming how it is well-positioned to generate long-term shareholder value. The operating margin reached an all-time high of 9% over the past 12 months. The robust growth justified the stock trading at a premium with a price-to-earnings multiple of 31.
Diamond Hill Select Strategy stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q2 2024 investor letter:
“Among our top individual contributors in Q2 were Amazon.com, Inc. (NASDAQ:AMZN), Texas Instruments and Mr. Cooper Group. Internet retail and cloud infrastructure company Amazon is benefiting from strong profitability, particularly in its Amazon Web Services (AWS) business. Shares also received a boost amid growing optimism around the demand for AWS as Amazon customers’ investments in generative AI projects continue growing.”
While we believe in AMZN’s potential, we believe that certain AI stocks promise to deliver high returns within a shorter timeframe. If you are looking for an AI stock that is more promising than AMZN but that trades at less than 5 times its earnings check out our report about the cheapest AI stock.
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