Amazon and Visa Lead as High-Quality Growth Stocks
When it comes to building wealth in the stock market, it's not about chasing hot trends, but owning high-quality businesses that can compound in value over long periods. Two such companies are Amazon (NASDAQ: AMZN) and Visa (NYSE: V), which have demonstrated superior growth potential.
Amazon shares have returned 560% over the past decade, outperforming the S&P 500 by a significant margin. Analysts expect the company's earnings to grow at a rate of around 20% annually in the coming years, supporting market-beating returns.
The cloud market is competitive, with Microsoft (NASDAQ: MSFT) right behind Amazon in terms of market share. However, Amazon may continue to benefit from its lead due to its broad capabilities and strong customer loyalty. CEO Andy Jassy stated that customers choose AWS because it offers the broadest capabilities and they want their AI inference to reside near their other applications and data.
AWS revenue grew 37% year-over-year in the second quarter, with a 39% operating margin. Jassy believes AWS could potentially reach $1 trillion in annual revenue, which would translate to roughly $400 billion in operating profit at today's margin.
Visa, on the other hand, operates like a tollbooth on global payments, earning an exceptionally high profit margin of 50%. The company has a long runway for growth and is well-positioned to benefit from value-added services such as fraud protection and software running on top of its network. Revenue from these services rose 34% year-over-year in constant currency last quarter.
Over the long term, Visa's revenue will likely continue to grow at double-digit rates, with earnings growing slightly faster. The opportunity ahead is substantial, with more than $20 trillion in consumer spending still paid with cash, checks, and other non-card methods.