2 growth stocks that could strengthen over the next decade | The motley fool

It’s always a good idea to invest in companies that have outstanding long-term growth potential. Paying a reasonable price for that growth is important, however, as overpaying for a high-growth stock can cost you dearly if the best-case scenario doesn’t happen.

While General Motors (GM 2.17%) AND Akamai (AKAM -0.73%) they may not be obvious picks for growth stocks, both have impressive growth potential over the next decade.

General Motors

Automaker GM is aiming to become a much bigger company this decade. By betting big on electric vehicles, autonomous driving and software, GM is aiming for annual revenue of between $275 and $315 billion by 2030. That’s about double the revenue generated in 2022.

Electric vehicles (EV) are a big part of the plan. By 2025, approximately $50 billion in annual revenue is projected to come from electric vehicles. GM expects to be able to produce about 1 million EVs annually in North America by that year and sees the operating margin for its EVs reaching low to mid-single digits.

Software and services have the potential to contribute between $20 billion and $25 billion in revenue by 2030, and GM expects this category to grow 50% annually this decade. The software will be key to improving GM’s profitability. The company sees its overall operating margin reaching a range of 12% to 14% by 2030, thanks in part to a 20% operating margin related to new business.

Cruise, GM’s self-driving subsidiary, alone is targeting $50 billion in revenue by 2030. Cruise is already operating its self-driving car service in parts of San Francisco, Austin and Phoenix. There have been a few issues, like a low-speed collision with a bus in San Francisco, and there are probably more kinks to work out. But the long-term potential is huge.

GM’s strong profitability is helping to fund all of these ventures. The company expects to produce net income of between $8.4 billion and $9.9 billion this year, along with adjusted automotive free cash flow of between $5.5 billion and $7.5 billion.

With a market cap of just $44 billion, the stock market is extremely downbeat. While the company’s results will certainly go hand in hand with the state of the economy, GM’s solid financial performance and attractive long-term growth prospects make the stock a buy.

Akamai

Content delivery network provider Akamai doesn’t look like much of a growing stock right now. Revenue grew just 1% year-over-year in the first quarter, and profits fell on higher costs.

But it’s Akamai’s long-term ambitions that make the title interesting. Akamai acquired cloud computing provider Linode in March of last year. Linode is similar to Digital Ocean as it is aimed at developers. Unlike big cloud platforms like AWS, however, Linode offers a small set of basic cloud computing services with simple, predictable pricing.

Akamai is expanding the number of “core” computing sites in its network, offering all of Linode’s cloud computing services. The company is also building dozens of “distributed” sites in areas underserved by large cloud platforms. These smaller sites will offer a subset of cloud computing services and will be integrated into the company’s existing edge computing network.

Revenue from information technology services was $116 million in Akamai’s first quarter, less than 13 percent of total revenue. The company believes information technology contributes approximately $500 million in revenue for the full year, and that number has the potential to grow significantly over time. Akamai has significantly increased its capital expenditure as it increases its data center footprint this year. The computer business should be able to grow at a double-digit rate for the foreseeable future.

While it will take some time for Akamai to return to stronger overall growth, the company remains highly profitable. Adjusted operating margin hovers just under 30% and free cash flow is still positive despite high capital expenditure. Akamai isn’t the cheapest stock, trading for about 16 times future earnings, but its long-term growth story looks promising.