These tech giants have outperformed the market significantly, and fresh prospects could propel their shares to even higher levels. Tech stocks have been the investment hotspot as the tech-oriented Nasdaq Composite index yielded 293% returns over the previous decade, outperforming the S&P 500’s blue-chip-laden 170% return. The burgeoning sectors of electric vehicles and artificial intelligence (AI) promise to provide even higher yields for investors in Tesla (NASDAQ: TSLA) and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), Google’s parent company.
Here’s an insight into two preeminent tech stocks that stand a solid chance to outdo the market over the upcoming decade.
Tesla
Over the past ten years, Tesla has proven itself as a remarkable growth investment. The stock experienced a phenomenal surge as the company’s revenue skyrocketed from $2 billion to a staggering $81 billion. Despite a tumultuous year for auto sales, Tesla’s shares demonstrated resilience, delivering significant revenue growth.
Although Tesla’s stock may appear costly with a forward price-to-earnings ratio of 78, it displays a fair price-to-sales ratio, trading 11 times the company’s trailing revenue. This presents a reasonable bargain for a rapidly growing electric vehicle producer that has consistently enhanced profit margins in recent years.
The market may underrate Tesla’s potential for further margin growth. The company is honing its manufacturing efficiency and tapping into profitable avenues like software development and high-performance computing. For instance, the company’s management envisions lending its Dojo supercomputer, currently used to train machine learning models for autonomous driving capabilities, to other firms as a service.
Its brand appeal is one of the most compelling reasons to invest in Tesla. The company exudes a ‘cool’ factor, significantly contributing to its business growth. Therefore, Tesla’s management aim to escalate vehicle production to 20 million per annum, up from 1.4 million in 2022, should not be taken lightly.
Despite Tesla’s remarkable journey, it is still a relatively minor player in the auto industry. Its ability to augment annual car production and explore new revenue streams from software indicates a high potential for continued stock growth. Investors would not underestimate Tesla’s ability to yield market-beating returns in the years ahead.
Alphabet
Alphabet has also delivered impressive returns for investors over the last decade. Even though the stock has seen a significant uptick and a broader market recovery this year, it still holds enough growth potential to outpace the major indexes over the next decade.
Given AI’s deep integration across Google’s services and enterprise cloud business, the burgeoning AI technology sector presents a substantial opportunity for the company. Even though Microsoft made headlines earlier this year with the introduction of generative AI features in its Bing search engine, Google remains unruffled. Dominating the search landscape and generating $40 billion in revenue last quarter, Google is well ahead in the game.
In May, Google revealed new generative AI functionalities for its core search engine. It already records 12 billion searches monthly through Lens, a feature that enables users to search through camera images. Enhancements to its core search product will likely engage more users, reinforcing advertising growth and maintaining Google’s lead in the digital advertising market.
Alphabet’s Google Cloud business is also poised to benefit from the increased adoption of AI technology. During the first-quarter earnings call, management cited several organizations using generative AI large language models on its cloud platform and other services like cybersecurity. While Google Cloud revenue constituted a small part of the total revenue last quarter, it exhibited a growth of 28% over the same quarter in the previous year.
Over the last decade, Alphabet realized an average annual revenue growth of nearly 20%, facilitated mainly by mobile adoption. AI will serve as the next growth catalyst for the company.
Although Alphabet’s revenue growth has slowed down over the past year due to a sluggish advertising market, it is anticipated to pick up as the economy improves. Analysts forecast the company to deliver an annualized growth in earnings of around 17% per year over the next five years, which could translate into similar returns for investors purchasing the stock today. The shares are currently attractively priced, trading at 23 times 2023 earnings estimates — slightly below the market average.
In summary, tech stocks continue to show promise, and with the solid track records and future growth prospects of Tesla and Alphabet, they present compelling investment opportunities in July. While every investment has inherent risks, these two giants exhibit robust resilience, innovative leadership, and strong market positions in their respective sectors. Tesla’s groundbreaking work in electric vehicles and Alphabet’s dominance in AI and cloud technology should continue to drive impressive growth in the future. Whether you’re a seasoned investor or just starting your journey, these are two stocks worth considering for your portfolio.
