Investing in growth stocks is one of the best ways to grow your wealth. By parking your money in well-managed businesses with solid prospects, you can steadily increase the value of your investment portfolio to enjoy a well-deserved retirement. Over time, as you continuously add money to this portfolio of growth stocks, the compounding will make you a millionaire.
You may be wondering which type of growth stocks are the best for you to allocate your money. Technology stocks sit at the top of the list for their growth potential amid a strong surge in demand led by generative artificial intelligence and the Internet of Things. You should look for attributes such as a strong competitive position, a robust business model, and a track record of growing revenue and free cash flow. The business should also enjoy sustainable tailwinds and a large total addressable market that can help it to grow steadily over the years.
Here are three technology stocks that fit the bill.
Image source: Getty Images.
Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing(NYSE: TSM), or TSMC, is the world's largest integrated circuit (IC) foundry. The company provides manufacturing services for advanced ICs for various semiconductor companies and is riding the wave of artificial intelligence-related cloud services as a megatrend to report higher revenue and profits. The business demonstrated steady growth in both revenue and net income over the past three years, as shown below.
Metric
2023
2022
2021
Revenue
NT$2.162 trillion
NT$2.264 trillion
NT$1.587 trillion
Operating income
NT$921.5 billion
NT$1.121 trillion
NT$650.0 billion
Net income
NT$851.7 billion
NT$992.9 billion
NT$592.4 billion
Data source: Taiwan Semiconductor Manufacturing. Fiscal years end Dec. 31. NT$ = New Taiwan dollars; NT$1 is worth about US$0.03 at current exchange rates.
Aside from growing its net income, TSMC also generated healthy positive free cash flow averaging 357.2 billion New Taiwan dollars over these three years. The company also pays out steady and increasing dividends, with the latest quarterly dividend being NT$4.50 for the third quarter of 2024. TSMC's performance has shot up in tandem with the new wave of generative AI applications which call for more complex microchips. Companies such as Advanced Micro Devices, Nvidia, and Qualcomm are ramping up production and partnering with TSMC to produce the chips that they need.
TSMC's results for the first nine months of 2024 demonstrates continued growth. Revenue climbed almost 32% year over year to NT$2 trillion while operating income jumped 35.6% year over year to NT$896.3 billion. Net income increased by 33.1% year over year to NT$798.6 billion. 2024's revenue benefited from the production of 3-nanometer chips, which commenced in the third quarter of 2023 and which contributes a fifth of total revenue for TSMC's latest quarter. The world's largest foundry continued to churn out a healthy positive free cash flow of NT$611.9 billion for the first nine months of 2024.
There is potential for further growth in the years to come. Amkor Technology and TSMC signed a memorandum of understanding last October to collaborate and deliver advanced packaging and test capabilities to help expand the semiconductor ecosystem in Arizona. CEO Che Chia Wei provided an update on the company's plans to build three new fabs in Arizona in the coming years. The first will begin volume production early this year while the second is scheduled to begin volume production in 2028. The third will begin production by the end of this decade and both the second and third fabs will utilize more advanced technologies in line with increasing customer needs. There is a long runway for growth for TSMC that should help to propel revenue and profits higher in the years ahead.
SentinelOne
SentinelOne(NYSE: S) is a cybersecurity company that provides an AI-powered, cloud-based platform called Singularity to detect and respond to cyber threats. This platform helps organizations to work securely and provides all-around protection to systems and networks. The business has seen its revenue more than triple from $204.8 million to $621.2 million in the past three fiscal years, as shown below.
Metric
2024
2023
2022
Revenue
$621.2 million
$422.2 million
$204.8 million
Gross profit
$441.9 million
$278.0 million
$123.1 million
Gross margin
71.1%
65.8%
60.1%
Data source: SentinelOne. Fiscal years end Jan. 31.
The good news is that its gross margin has also been climbing, going from 60.1% in fiscal 2022 to 71.1% in fiscal 2024. As a result, gross profit shot up nearly 260% over this period. Although SentinelOne generated negative free cash flow over these three fiscal years, there was some improvement from negative $105.9 million in fiscal 2022 to negative $87.1 million by fiscal 2024.
SentinelOne continued to post healthy growth in the first nine months of fiscal 2025. Revenue increased by 33.3% year over year to $596 million while gross profit shot up nearly 40% year over year to $441.8 million. Gross margin continued to rise, going from 70.7% a year ago to 74.1%. The cybersecurity company also generated positive free cash flow of $15.5 million for the nine months, reversing the negative free cash flow of $76.4 million in the prior year. Annualized recurring revenue grew by 29% year over year to $860 million for the third quarter, showcasing the increasing use of SentinelOne's platform.
Management identified a vast and growing total addressable market of around $100 billion, according to 2025 market forecasts from IDC, Gartner, and Forrester. The business looks set to continue growing as demand for cybersecurity services stays robust. SentinelOne's Purple AI solution, which is built on its Singularity Data Lake, allows the software to work faster and increases coverage, thereby translating into real-world savings and making the company's offering very compelling. Investors should continue to witness steady growth in the company's top line and the business is also starting to generate positive free cash flow, in a sign of better days to come.
Fiserv
Fiserv(NYSE: FI) provides financial technology and services to customers in the financial services industry. The company's clientele also includes banks, small businesses, credit unions, and the public sector. The company has steadily grown its revenue, operating income, and net income from 2021 to 2023, as shown in the table below.
Metric
2023
2022
2021
Revenue
$19.093 billion
$17.737 billion
$16.226 billion
Operating income
$5.014 billion
$3.740 billion
$2.288 billion
Net income
$3.068 billion
$2.530 billion
$1.334 billion
Data source: Fiserv. Fiscal years end Dec. 31.
This steady growth underscores the popularity of its service offerings and also demonstrates superb operating leverage as the business's net income margin has doubled from just 8% in 2021 to 16.1% in 2023. Along the way, Fiserv's free-cash-flow generation also showed steady improvement, going from $2.9 billion in 2021 to $3.8 billion by 2023.
The first nine months of 2024 saw continued growth for the financial technology business. Revenue rose 7.3% year over year to $15.2 billion while operating income climbed 18% year over year to $4.2 billion. Net income, however, stayed flat year over year at $2.2 billion because of a $642 million loss from investments in unconsolidated affiliates. Free cash flow, however, continued to increase, rising by 16% year over year to $2.9 billion for the period.
There are clear signs that this success can continue. Back in November last year, Fiserv teamed up with human capital management solutions provider ADP to offer small businesses access to an integrated, all-in-one solution powered by ADP and Clover, Fiserv's small business solutions software. A month later in December, Fiserv launched Clover in Brazil to provide a comprehensive suite of solutions to businesses in the country. Clover also offers the Centraliza app which allows merchants to choose the financial institutions and card brands that best suit their needs. Late last month, the company announced the acquisition of Payfare Inc., a provider of program management solutions. This purchase will complement Fiserv's embedded finance solutions and provide a wider selection of services to current and potential customers. With these moves, investors can be assured that Fiserv can continue to grow its revenue, profits, and free cash flow well into the future.
Should you invest $1,000 in Taiwan Semiconductor Manufacturing right now?
Before you buy stock in Taiwan Semiconductor Manufacturing, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Taiwan Semiconductor Manufacturing wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $885,388!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
Royston Yang has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
