One key advantage of investing in growth stocks is that they may have a lot of untapped potential. Growth stocks are often considered for long-term investment strategies. By holding onto these stocks, investors may benefit from compounding returns, allowing their wealth to accumulate over the years.
Many growth stocks are found in sectors known for their innovation and disruptive technologies. Investing in these companies exposes you to industries that are shaping the future, with the potential for significant returns over time.
Here, we'll take a look at two such growth stocks from two different sectors that can provide investors with some diversification.
My first choice is the semiconductor company Advanced Micro Devices (AMD), popularly known as AMD. While market darling Nvidia (NVDA) dominates the chip industry, AMD has also solidified its position over the last few years. Longer term, AMD's stock price has increased by an astounding 4,215% over the last decade.
My second choice is the e-commerce company Etsy (ETSY), which grew to fame during the pandemic. Its journey from a niche marketplace to a global e-commerce giant, even in the post-pandemic era, is a story of resilience.
Let's dig deeper to see why these two are the hottest growth stocks to buy in 2024 and beyond.
Advanced Micro Devices Stock
Valued at $236.8 billion by market cap, AMD is challenging the dominance of its competitors and carving out a significant market share in the semiconductor space. Known for its innovative products and strategic moves, AMD has been on a remarkable growth trajectory with bright prospects.
Its stock gained 127% last year, wildly surpassing the tech-heavy Nasdaq Composite's ($NASX) gain of 43.4%.
AMD's fundamentals thrived in 2023, fueled by the artificial intelligence (AI) rush. Following a slowdown in its data center business last year, the segment is gradually recovering, with revenue of $1.6 billion staying flat YoY in the third quarter. However, sequentially, the metric grew by 21% due to the accelerated customer adoption of AMD’s 4th Gen EPYC CPUs.
Total revenue came in at $5.8 billion, up 4% year-over-year. Diluted earnings per share (EPS) also jumped 4% to $0.70 in the quarter, surpassing the consensus estimate by $0.02 per share.
AMD's growth is not limited to the consumer and data center segments. The company has also been making strides in other markets, including gaming consoles.
According to CEO Lisa Su, AI represents a “multibillion-dollar growth opportunity for AMD across cloud, edge, and an increasingly diverse number of intelligent endpoints.”
To integrate open AI software into its hardware, AMD made strategic acquisitions in 2023 - namely, open-source AI software expert Nod.ai and AI software leader Mipsology.
Following Q3, the company released several significant AI-powered high-end processors, including the Ryzen Threadripper PRO 7000 WX-Series processors, Ryzen Threadripper 7000 Series processors, Ryzen 7045HX3D Series mobile processors, and the Ryzen 5 5600X3D processor for gaming.
Looking ahead, as AI progresses, AMD's growth prospects appear robust in the next few years. The continued demand for high-performance graphic processors in various sectors bodes well for the company.
Management expects fourth-quarter revenue to be around $6.1 billion (plus or minus $300 million), which is in line with the consensus estimate of $6.14 billion. Furthermore, adjusted gross margins could land at 51.5% in Q4. Looking ahead, analysts predict a 17% year-on-year increase in revenue by 2024.
What Do Analysts Say About AMD?
With the optimistic outlook for chip stocks, analysts at Stifel, KeyBanc, Bernstein, Mizuho, Truist, and a few others raised the target price for AMD stock this month.
Overall, Wall Street has assigned a “strong buy” rating to AMD. Out of the 30 analysts covering the stock, 24 rate it a “strong buy,” with one “moderate buy” rating and five “hold” ratings.
AMD has already surpassed its average target price of $143.53. Its high target price of $200, however, implies a potential upside of 37% over the next 12 months.
Etsy Stock
In the fast-paced world of e-commerce, Etsy has established itself as a unique and thriving marketplace, bringing together creators, artisans, and buyers from all over the world. Since its inception in 2005, Etsy has evolved from a niche platform for handmade and vintage items to a global marketplace serving a diverse range of sellers and buyers.
The COVID-19 pandemic fueled global e-commerce growth, and Etsy was no exception. However, the company continued to show robust growth last year, even amid macroeconomic challenges that impacted consumer discretionary spending.
In the most recent third quarter, despite headwinds, the company added 6 million new buyers to its platform. Etsy's consolidated gross merchandise sales (GMS), a key metric that measures the total value of goods sold on the platform, increased by 1.2% to $3.0 billion. This resulted in a 7% increase in revenue to $636.6 million over the previous year. Management stated that "Etsy Ads, payments revenue, and transaction fee revenue from Offsite Ads" drove revenue growth.
Etsy's net income came in at $87.9 million, compared to a loss of $963 million in the year-ago quarter. In April 2022, Etsy raised the seller transaction fee from 5% to 6.5% to boost revenue. Despite the fee hike, active sellers on the platform increased by 19% in the third quarter, reaching 8.8 million.
The company's growth prospects remain promising because of its one-of-a-kind business model. The ongoing shift toward online shopping, the platform's commitment to fostering a sense of community, and its adaptability to market trends all contribute to its optimistic outlook. Furthermore, as consumers seek out unique and sustainable products, Etsy's emphasis on handmade and vintage items fits well with these changing preferences.
Notably, Wall Street does not expect the company to report dramatic growth as macroeconomic headwinds persist. However, Etsy is expected to grow steadily, with revenue and earnings projected to increase by 5.4% and 3.8%, respectively, in 2024.
Etsy trades at 15 times forward 2024 earnings, which is lower than its historical five-year average price-to-earnings ratio of 55.
What Do Analysts Say About Etsy?
Wall Street rates Etsy stock a “moderate buy.” Out of the 27 analysts covering the stock, 10 rate ETSY a “strong buy,” two rate it a “moderate buy,” and 13 rate it a “hold.” Additionally, one analyst rates the stock a “moderate sell,” while one analyst recommends a “strong sell.”
The mean target price for the stock is $85.58, which is 20.4% above current levels, while the Street-high price target of $170 implies expected upside of 139%.
