The key strategy for maximizing long-term returns is to select companies with strong fundamentals and a thirst to innovate and grow. Growth stocks are shares of companies whose earnings are expected to grow at an above-average rate compared to others.
These businesses often operate in emerging industries, developing new products, services, or technologies that disrupt established markets. Here are two top growth stocks trading under $40 that investors can buy and hold for the long term to target significant capital gains.
Growth Stock No. 1: Palantir Technologies
Founded in 2003, Palantir Technologies (PLTR) operates in the data analytics industry. It began with a focus on government contracts, and has since expanded into the commercial sector, providing artificial intelligence (AI) data-driven solutions to a variety of industries.
Valued at $72.37 billion, PLTR stock has soared a whopping 86.6% year-to-date, outpacing the S&P 500 Index’s ($SPX) 17.2% gain on the rapid growth of its AI platform and strategic partnerships.
Palantir is well-known for its powerful data integration and analytics AI platforms, Gotham and Foundry. Gotham is primarily used by government agencies for intelligence and defense, whereas Foundry is designed to help commercial enterprises integrate, manage, and analyze massive amounts of data.
Palantir's close ties to government agencies, such as the U.S. Department of Defense and various other intelligence organizations globally, are one of its key strengths. These relationships provide a consistent revenue stream and a level of credibility that competitors struggle to match. In the second quarter, government sector revenue rose by 23% year on year, accounting for 54.7% of total revenue of $678 million. Total revenue increased by 27% year over year.
Following its earnings, the company announced a collaboration with tech giant Microsoft (MSFT). Both companies intend to provide the most “sophisticated and secure cloud, AI, and analytics capabilities to the U.S. Defense and Intelligence Community.”
The goal is to use Palantir's Artificial Intelligence Platform (AIP) and Microsoft's large language models (LLMs) through Azure AI to power Microsoft's government and classified cloud environments.
Despite the strength of its platform and strategic partnerships, Palantir operates in a fiercely competitive market. The company's reliance on the government sector as its primary clientele is risky.
As a result, on the commercial side, Palantir has made progress in industries such as healthcare, finance, and manufacturing, leveraging its technology to solve complex problems.
Commercial revenue increased 33% in the second quarter compared to the prior-year quarter. The company has over 300 commercial and strategic alliances with Oracle (ORCL), PwC, and others for AIP.
Palantir also reported record GAAP (generally accepted accounting principles) earnings of $0.06 per share, up from $0.01 in the prior-year quarter.
The company's balance sheet is strong, with $4 billion in cash, cash equivalents, and short-term US Treasury securities at the end of the second quarter. It also generated an adjusted positive free cash flow (FCF) of $149 million, and expects to generate FCF of $800 million to $1 billion by 2024. The company also plans to report a GAAP profit in the remaining quarters of 2024.
Like most high-growth tech stocks, Palantir stock's valuation has been a contentious issue among investors. It currently trades at 74 times forward 2025 earnings. Analysts that cover PLTR stock forecast a 42.1% increase in 2024 earnings, followed by an additional 21.8% increase in 2025. Analysts expect revenue to increase by 24% in 2024 and 20.6% in 2025, respectively.
Palantir Technologies is a fascinating company with enormous growth potential, particularly in the commercial sector. The company's ability to enter new markets and expand its presence among existing customers will be critical drivers of future growth.
What Does Wall Street Say About Palantir Stock?
Overall, Wall Street’s sentiment towards Palantir is mixed, with an average rating of "hold.” Of the 15 analysts who cover PLTR, three rate it as a "strong buy," one rates it as a "moderate buy," four recommend a "hold," one rates it as a “moderate sell,” and six suggest a “strong sell.”
Palantir has surpassed its mean price target of $23.73. Its high target price of $38 indicates an upside potential of 17.5% over the next 12 months.
Growth Stock No. 2: Corsair Gaming
Corsair Gaming (CRSR) is a well-known brand in the gaming and esports industries, producing high-performance hardware and peripherals. Corsair has established a brand that appeals to gamers and content creators, offering gaming PCs, components, and accessories as well as streaming gear.
Valued at $680.5 million, small-cap Corsair stock has fallen 55% YTD, compared to the broader market's gain.
In the second quarter, total revenue fell 19.7% to $261.3 million, with an adjusted net loss of $0.07 per share, compared to adjusted net income of $0.09 per share in Q2 2023. Management believes that inflation and high interest rates have hurt consumer purchases, which has reduced demand for the company's products.
Furthermore, a weaker-than-expected self-built PC market lowered revenue from the Gaming Components and Systems segment in the quarter.
Andy Paul, Corsair's CEO, believes the self-built PC market is due for a refresh, which could begin soon as Nvidia (NVDA) launches new GPUs (graphic processing units) in late 2024. Furthermore, the release of new highly anticipated games such as Call of Duty: Black Ops 6 in late 2024 and Grand Theft Auto VI in 2025 could potentially revive demand for its Gaming Components and Systems products.
According to Expert Market Research, the global gaming peripherals market is expected to grow at a compounded rate of 10.3% from 2024 to 2032, reaching $13 billion. Corsair's focus on high-performance products positions it well to capitalize on this trend.
In the second half of 2024, the company is focusing on controlling operating expenses to return to profitability. In 2024, it expects net revenue to range between $1.25 billion and $1.35 billion, with positive adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) ranging from $60 million to $75 million.
At the end of the second quarter, cash and restricted cash balances totaled $94.6 million, which management believes is sufficient to fund their expanding product portfolio.
Analysts also expect Corsair to report an adjusted profit of $0.32 per share in 2024, with earnings further rising by 89.9% to $0.61 in 2025. At 10 times forward 2025 earnings, the company seems relatively reasonable, compared to many growth-oriented tech stocks.
Corsair Gaming is a well-known player in the gaming hardware market, with a strong brand and a diverse product line. While the company is currently facing challenges from competition and market dynamics, its emphasis on quality, innovation, and profitability lays the groundwork for long-term growth once external headwinds subside.
What Does Wall Street Say About Corsair Stock?
Overall, Wall Street rates Corsair stock as a "moderate buy.” Of the seven analysts who cover CRSR, four rate it as a "strong buy," and three recommend a “hold.”
Its mean price target of $10.71 suggests the stock can rally 68.4% from current levels. CRSR's high target price of $14 indicates an upside of 120% over the next 12 months.
