Buying and holding strong companies for the long term is a recipe for success in the stock market, as such a strategy allows investors to benefit from the power of capitalization while helping them navigate disruptive trends in various industries.
Advanced micro-systems (AMD -2.33% ) and Amazon ( AMZN -0.22% ) have delivered terrific returns to investors over the past decade, beating the broader stock market by a wide margin.
AMD has benefited from the growing demand for chips used in several applications ranging from computers to game consoles to data centers. Amazon, on the other hand, has gained a lot from the growing adoption of e-commerce across the world and expanded into fast-growing and lucrative markets such as cloud computing.
Additionally, AMD and Amazon could continue to be big winners in the stock market over the next decade, making these two stocks ideal candidates to hold for the long term. Let’s see why.
1. Advanced microdevices
Advanced Micro Devices’ share price is down 32% in 2022, opening a solid window for investors to buy the chipmaker at a relatively cheap valuation. The company’s shares are trading at 39 times earnings, lower than its five-year average of 108 and the 44 multiple of earnings last year. Buying AMD at these multiples may prove to be a smart long-term bet as the company can benefit from multiple growth drivers over the next decade.
The video game market, for example, should prove to be a huge catalyst for the company, as AMD manufactures discrete graphics cards used for PC (personal computer) gaming, semi-custom chips used in consoles of gaming and processors (central processing units) for PCs.
AMD held a 19% share of the discrete GPU (graphics processing unit) market at the end of 2020. Additionally, the company’s share of the desktop processor market was 16.2% at the end of 2020. of 2021, according to Mercury Research. It also controlled 21.6% of the notebook processor market at the end of last year. The global computer games market could reach $146 billion by 2030, up from $40 billion in 2020, driven by increased sales of GPUs, faster processors, and other components such as memory and systems cooling.
Thus, retaining its share of discrete GPUs and CPUs would allow AMD to generate substantial revenue growth through the growth of the PC gaming hardware space.
Meanwhile, the data center market could prove to be another happy hunting ground for AMD. The company’s data center revenue more than doubled in 2021, with the segment generating about 25% of its revenue. AMD’s data center business was driven by the company’s growing share of server CPU space, as well as strong demand for its data center accelerators.
Mercury Research estimates that AMD ended 2021 with a 10.7% share of the server processor market, up from 7.1% the previous year. Bank of America estimates that AMD’s server market share could eventually reach 35% in the long term, which could lead to substantial revenue growth for the company, as this market is currently worth $70 billion.
AMD is also making huge strides in the data center GPU market, with revenue from this product line more than doubling in the fourth quarter of 2021. The company is confident of stronger growth in this segment as more more customers are choosing its data center boards to accelerate artificial intelligence and high-performance computing workloads.
With the data center accelerator market expected to see 40% annual earnings growth through 2030, this is another fast-growing area that could give AMD a big boost. Unsurprisingly, analysts expect AMD’s annual earnings growth of 30% over the next five years, a pace it could sustain for longer given the catalysts discussed above. All of this indicates that AMD could continue to be a hot growth stock over the next decade, just as it has been in the last.
Amazon is another stock that could maintain its exceptional momentum over the next decade thanks to the enormous potential of the markets in which it operates. The global e-commerce market, for example, is expected to more than quadruple by 2030 to $17.5 trillion from $4.2 trillion in 2020.
Amazon is one of the largest e-commerce companies in the world, accounting for a 13% share of gross merchandise value (GMV) – which is the total value of goods sold through e-commerce – in 2020 according to third-party estimates. . This means Amazon is well positioned to make the most of the end market opportunity. It should also be noted that Amazon is the key player in major e-commerce hotspots such as the US, UK, and India.
Amazon reportedly controlled 43% of the US e-commerce market last year, while its share in the UK and India stands at 30% and 31%, respectively. The United States and the United Kingdom are the second and third largest e-commerce markets in the world, while India ranks seventh. These countries are expected to play an important role in the growth of the global e-commerce market. India, for example, could become a $350 billion e-commerce market by 2030, up from $46 billion in 2020.
Thus, the secular growth of the e-commerce market around the world should have a positive impact on Amazon in the long term. This, however, is not the only major catalyst for the company. Amazon Web Services (AWS) – the company’s cloud computing division – is its fastest growing segment. AWS saw 37% annual growth in 2021, outpacing overall company revenue growth of 22%.
The AWS business generated $62 billion in revenue last year out of Amazon’s total revenue of $469.8 billion, which is 13% of the company’s revenue. So the cloud business could move the needle more significantly for Amazon in the long run, as it has the ability to continue to grow at a faster rate than the e-commerce business. Indeed, Amazon is the main player in the cloud infrastructure market. It controlled a third of that $180 billion market last year, and the good part is that it has maintained its dominance in that space for the past five years.
With the global cloud infrastructure market expected to grow 16% annually through 2030, Amazon’s strong market share in this space could provide a good long-term revenue boost. All of this explains why Amazon’s revenue is expected to grow nearly 35% annually over the next five years. It will not be surprising to see it maintain this pace beyond this period due to the boom in cloud computing and e-commerce activities, which is why it is a growth stock that it worth keeping for the next decade.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.