Investing is not only about picking great stocks -- it's also about taking advantage of the power of compound growth. Given enough time, compounding can turn good returns into great returns, setting investors up for retirement.
If your goal is to grow your portfolio to a $1 million value in a decade, it would be reasonable to expect you'd have to start with at least a $200,000 portfolio. If you could achieve a 20% compound annual return over that period, a $200,000 portfolio would grow into one worth $1 million.
Now, getting a 20% annualized return over a 10-year stretch is not easy or common, but it is achievable. And if that's your goal, you'll want to turn toward market leaders that can both innovate and have wide moats. These three companies fit those criteria.
Nvidia
When it comes to market leadership, Nvidia(NASDAQ: NVDA) clearly checks that box. The company has established itself as the leader in the artificial intelligence (AI) hardware space, where its graphic processing units (GPUs) provide most of the parallel-processing computing power being tapped to train and inference AI software. Last year, it had a nearly 90% share of the GPU market.
Beyond its high-powered chips, the company built itself a wide moat through its CUDA software platform, which it developed back in 2006. CUDA allows developers to program Nvidia's GPUs for tasks other than speeding up graphics rendering in video games -- the job for which they were initially made.
Over the years, many developers learned CUDA, and it became the industry standard. Since then, Nvidia has built a number of tools, libraries, and microservices designed specifically for use with AI on top of CUDA, further expanding its leadership and moat.
More recently, it moved to an accelerated chip development cycle: Where it used to introduce new GPU models every two years, it now intends to do so annually, a shift that will help it remain at the cutting of AI chip technology. All of this is helping it maintain solid pricing power and spurring heavy demand for its wares, which sets the company up well to be a long-term winner.
Image source: Getty Images.
Microsoft
Microsoft(NASDAQ: MSFT) is another proven market leader. It has dominant positions in worker productivity tools with its Microsoft 365 suite, and in personal computer operating systems with Windows. Microsoft 365, which is the driving force behind its productivity and business processes segment, has more than 80 million subscribers.
This segment generated $77.7 billion in revenue in the company's fiscal 2024 (which ended June), while its "more personal computing" segment, which includes the Windows and Xbox businesses, produced another $62 billion.
The company has been adaptable throughout the years, shifting from a traditional software sales model to offering bundled subscriptions, and then later becoming the first major tech company to embrace generative AI through its large investment and partnership in OpenAI.
Today, Microsoft is using AI throughout its businesses. Its cloud computing unit, Azure, which is the No. 2 player in the space, has been the biggest beneficiary, growing revenue 33% last quarter as it helped customers develop AI Copilots and assistants. Meanwhile, management plans to spend a whopping $80 billion on AI data centers this year as the company aims to capture more of the growing cloud computing opportunity.
In addition, Microsoft has a tremendous opportunity in front of it with its AI Copilots -- AI assistants that can help improve worker efficiency by doing things such as summarizing key points in documents or organizing email folders. The company has also introduced more advanced features, such as one that allows Excel users who are not programmers to describe in natural language the kind of analysis they want done on a data set, and have the Excel Copilot produce a Python program that does it.
With those Copilot subscriptions going for $30 per enterprise user per month, they could be a nice revenue growth driver over the years, as the software has the potential to save customers time and money. Microsoft has also decided to add Copilot to its personal 365 plans, and is raising the prices on them by $3 per month to reflect that.
Alphabet
Alphabet's (NASDAQ: GOOGL)(NASDAQ: GOOG) Google search engine has a nearly 90% market share while its YouTube video service is the most-watched streaming platform in the world. Between them, they have made the company the largest digital advertising platform in the world, and it uses its adtech platform to feed ads both to its own properties and third-party sites.
While Google Search is facing competition from some new AI-powered search engines, it continues to have a wide moat stemming from its decades of search data and analytics that its AI model, Gemini, can train on, as well as the strength and scale of its ad network. YouTube, meanwhile, has helped the company take a lead in visual and multimodal AI. Its Veo 2 text-to-video generator was trained in part on YouTube content, and its output has been judged to be far superior to OpenAI's Sora, which was launched just a few weeks earlier.
Alphabet also operates Google Cloud, the third-largest and fastest-growing cloud infrastructure business. Like Azure, Google Cloud enables customers to build their own AI models and applications fueling its expansion. Alphabet also developed its own custom AI chips with the help of Broadcom. It has credited that hardware with lowering costs and improving AI inference processing time.
In addition to its core businesses, Alphabet is also at the forefront of two developing technologies: autonomous driving, where its Waymo unit is already offering robotaxi services in limited markets; and quantum computing, where its Willow quantum processor recently delivered groundbreaking results. These types of innovations could lead to strong growth for Alphabet in the coming years.
Should you invest $1,000 in Nvidia right now?
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Microsoft, and Nvidia. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
