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Top Growth Stocks to Watch: TSMC and SentinelOne Lead the Charge
Investing in growth stocks offers an effective path to increasing your wealth. By allocating funds to well-managed companies with promising futures, you can steadily enhance your investment portfolio and work toward a satisfying retirement. Over time, consistent contributions to a growth stock portfolio can harness the power of compounding, setting you up for significant financial success.
Considering where to invest $1,000 can be daunting. Technology stocks are particularly appealing due to their substantial growth potential, driven by trends in generative artificial intelligence and the Internet of Things. When evaluating stocks, look for firms with strong competitive positions, effective business models, and proven histories of revenue and free cash flow growth. Favorable market conditions and a large addressable market are also critical for continued success.
Looking for smart investment choices? Our analysts have identified the 10 best stocks to consider now. Discover the 10 stocks »
1. Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing (NYSE: TSM), or TSMC, stands as the largest integrated circuit (IC) foundry in the world. The company produces advanced ICs for various semiconductor firms and is benefiting significantly from the rise of AI-driven cloud services. This trend has translated into increased revenue and profits, demonstrating consistent growth over the past three years.
| 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.
In addition to growing net income, TSMC’s free cash flow averaged NT$357.2 billion over the last three years. The company consistently raises its dividend, recently announcing a quarterly dividend of NT$4.50 for the third quarter of 2024. Demand for generative AI applications is propelling TSMC’s performance, as partners like Advanced Micro Devices, Nvidia, and Qualcomm seek its expertise to manufacture complex microchips.
TSMC exhibited continued growth in the first nine months of 2024, with revenue rising nearly 32% year over year to NT$2 trillion. Operating income surged by 35.6% to NT$896.3 billion, and net income grew 33.1% to NT$798.6 billion. The introduction of 3-nanometer chips, launched in the third quarter of 2023, is contributing significantly to this success, accounting for one-fifth of the newest quarter’s revenue. Furthermore, TSMC generated robust free cash flow of NT$611.9 billion during this period.
Looking ahead, TSMC has plans for extensive growth, including an agreement with Amkor Technology to enhance advanced packaging and test capabilities. CEO Che Chia Wei revealed plans for three new fabs in Arizona, with the first starting production soon and the others slated for 2028 and beyond. As the semiconductor market evolves, TSMC is strategically positioned for ongoing expansion.
2. SentinelOne
SentinelOne (NYSE: S) operates in the cybersecurity space with its AI-based platform, Singularity. This innovative solution protects organizations from cyber threats. Over the past three fiscal years, SentinelOne’s revenue has more than tripled, climbing from $204.8 million to $621.2 million.
| 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 company has also seen improvements in gross margins, increasing from 60.1% in fiscal 2022 to 71.1% in fiscal 2024. This growth has led to a nearly 260% rise in gross profit. While SentinelOne initially reported negative free cash flow, the figure improved significantly from negative $105.9 million in fiscal 2022 to negative $87.1 million in fiscal 2024.
In the first nine months of fiscal 2025, SentinelOne continued to show growth, with revenue increasing by 33.3% year over year to $596 million. Gross profit also surged nearly 40% year over year, reaching $441.8 million. The gross margin continued its upward trajectory, climbing to 74.1%. For the first time, SentinelOne recorded positive free cash flow of $15.5 million, recovering from a loss of $76.4 million the previous year. Annualized recurring revenue grew by 29% year over year, reaching $860 million in the third quarter, reflecting the growing demand for SentinelOne’s cybersecurity solutions.
Management has identified a substantial total addressable market of around $100 billion, based on projections from IDC and Gartner for 2025.
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Steady Growth Forecasted for Fiserv as Cybersecurity Demand Rises
SentinelOne’s Innovation Drives Market Potential
Forrester anticipates continued growth for SentinelOne. The demand for cybersecurity services remains strong, and the company’s Purple AI solution enhances speed and coverage, translating to tangible savings for clients. This compelling offering suggests investors can expect consistent growth in revenue. Positive free cash flow signals brighter days ahead for the business.
Financial Technology Powerhouse Fiserv Thrives
Fiserv (NYSE: FI) offers financial technology and services, catering to banks, credit unions, small businesses, and the public sector. From 2021 to 2023, the company has experienced remarkable growth in revenue, operating income, and net income. The data below illustrates this progress.
| 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 consistent upward trajectory highlights the increasing demand for Fiserv’s services, demonstrating impressive operational efficiency. The company’s net income margin surged from 8% in 2021 to 16.1% in 2023. Additionally, free cash flow grew from $2.9 billion in 2021 to $3.8 billion in 2023, reflecting its financial health.
Throughout the first nine months of 2024, Fiserv continued its growth trajectory. Revenue increased by 7.3% year on year to $15.2 billion, while operating income soared by 18% to $4.2 billion. In contrast, net income remained unchanged at $2.2 billion due to a $642 million loss from investments in unconsolidated affiliates. Nonetheless, free cash flow rose by 16% year on year, reaching $2.9 billion.
Looking ahead, Fiserv shows promise with its strategic partnerships and product launches. In November 2023, Fiserv collaborated with human capital management provider ADP, offering small businesses an all-in-one solution powered by ADP and Clover, its small business software. The following month, Fiserv expanded Clover’s reach to Brazil, introducing tools that enable merchants to select their preferred financial service providers. Recently, the company announced its acquisition of Payfare Inc., enhancing its embedded finance solutions. These initiatives position Fiserv for sustained growth in revenue, profits, and free cash flow in the future.
Considering an Investment in Taiwan Semiconductor Manufacturing?
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Royston Yang has no positions in any of the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool also recommends Gartner. Full disclosure can be found on their website.
The views and opinions expressed herein belong to the author and do not necessarily reflect those of Nasdaq, Inc.
