Growth investors often lament that if they had just put $10,000 in one of the more successful tech giants, they would be millionaires today. Knowing that, they will often buy what they think are stocks that will soar in the future in the hope of earning such a return years later.
Admittedly, these giant companies have probably grown too large to achieve another 1,300-fold gain or greater. Nonetheless, a trio of tech titans are probably not done growing yet and appear capable of making new investors considerably richer. Three Fool contributors believe such potential remains in Apple (AAPL 1.48%), Oracle (ORCL 1.49%), and Amazon (AMZN 1.59%).
The stock market king has plenty of gas left in the tank.
Jake Lerch (Apple): A relatively modest investment of $10,000 in Apple when Steve Jobs returned to the company in February 1997 would have grown to more than $14 million today.
Most of that astonishing return can be chalked up to the iPhone. Introduced in 2007, it launched Apple into the stratosphere, making it America’s largest company by market cap by 2011.
However, if Apple is to stay on top, it will need to evolve. Hardware revenue is declining: In its most recent quarter (ending on June 30), Apple reported iPhone sales of $39.7 billion, down 2.4% from a year earlier. Mac sales dropped 7.3%, and iPad revenue plummeted almost 20%.
Image source: Apple
What rode to the rescue was Apple’s services segment — and wearables to a much lesser extent. Services generated $21.2 billion in revenue. This unit, which includes sales from features like iCloud, iTunes, and Apple TV+, grew 8.2% year over year and cut the company’s total sales contraction to just 1.4%.
The services unit, which also includes revenue generated through the App Store, advertising (including on Apple News), and extended warranties, should continue to grow in importance. Not only is the segment driving revenue growth, but it also has fantastic margins. In its most recent quarter, it had gross margins above 70%, roughly double the hardware unit’s 35%.
Apple remains a solid investment, but maybe not for the reason many investors think. Nowadays, it is as much about services — if not more — as it is about hardware.
Don’t underestimate one of Wall Street’s tech leaders
Justin Pope (Oracle): Oracle has been around for decades, successfully evolving from database software to a mix of cloud computing products and services. A modest $10,000 investment would have grown to nearly $21 million, and the stock has trounced the broader market over the past five years, so this stock still has juice.
Artificial intelligence (AI) requires processing tremendous amounts of data to train models, and this is potentially a catalyst for Oracle. Co-founder and current chief technical officer Larry Ellison said on the company’s fiscal 2024 first-quarter earnings call that its interconnected Nvidia superclusters, groups of powerful computers that share computing power, can train AI models twice as fast for less than half the cost of competitors. He also announced that Elon Musk’s xAI company has signed on to train its models with Oracle.
The company wants to grow its revenue from $50 billion in fiscal 2023 to $65 billion in fiscal 2026, a 30% increase over the next three years. It is already a cash cow, converting between 15% and 30% of sales into free cash flow in a given year. That money tends to wind up in shareholders’ pockets via dividends, or it grows the company via bolt-on acquisitions.
The above chart paints a clear track record of value creation for investors. While 30% growth over three years isn’t as exciting as some other stocks on Wall Street, Oracle is a slow and steady performer that long-term investors should feel good about holding on to.
The e-commerce company that has a bright future transforming tech
Will Healy (Amazon): Amazon has served its shareholders well for most of its history, but the totality of this e-commerce pioneer’s gains might surprise some investors. Those who invested $10,000 in Amazon’s May 1997 initial public offering and held on now own shares worth almost $13 million.
Most companies that have reached a $1.3 trillion market cap are past their days of rapid growth. But that might not be the case with Amazon. After building a first-mover advantage in e-commerce, it pioneered the cloud computing industry through Amazon Web Services (AWS).
And it has leveraged its e-commerce site to build faster-growing advertising, subscription, and third-party seller businesses. Online selling remains its largest revenue source, but the financial statements imply that this part of the business loses money.
Nonetheless, net income should grow rapidly thanks to the higher profit margins of its comparatively smaller AWS business, which has typically earned the majority of Amazon’s operating income. Although it does not break out earnings for advertising, subscriptions, or third-party selling, such businesses usually yield higher margins.
Moreover, Amazon has recovered from the lows of 2022, when it had fallen about 55% from the all-time high set in 2021. And even with the recovery, the cloud stock trades at an approximate 33% discount from that record.
Ultimately, growth-focused investors should start looking at Amazon as a tech name rather than a retailer. Yes, it should remain a popular e-commerce site, but the company derives its present growth potential from AWS and the ancillary businesses tied to its website.
As long as the growth of those enterprises continues, Amazon’s investors will likely want to stick with it regardless of when they bought shares.
This content was originally published here.
