2 Monster Stocks That Could Create Generational Wealth

Key Points

• Shopify stock is up over 400% since 2022, yet the company only controls a fraction of the e-commerce market.

• Duolingo is using artificial intelligence to personalize education and potentially disrupt an $8 trillion industry.

• 10 stocks we like better than Shopify ›

Growth stocks make it fairly easy for anyone to build wealth in the stock market. Focusing on the companies that are innovating and disrupting large industries can help you find the right stocks that deliver explosive gains.

Here are two growth stocks that have already delivered significant gains for investors with room to run over the long term.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

Image source: Getty Images.

1. Shopify

Shopify (NASDAQ: SHOP) has truly been a monster stock. Investors who bought shares shortly after its initial public offering in 2015 would be up over 4,000% today, and it's up over 400% since the market bottomed out in 2022.

These returns ultimately reflect the value Shopify offers business owners. For a relatively low subscription cost, merchants can set up an online store, accept payments, and have access to artificial intelligence (AI) tools that automate tasks.

Shopify has ample room to grow. The total value of all transactions completed with a Shopify merchant was $88 billion last quarter, or an annual run rate of $352 billion. Even though Shopify continues to grow its business at high double-digit rates, its annual GMV is still a small fraction of the $6 trillion global e-commerce market.

There are two important facts that make the stock a good investment.

1. Shopify is leveraging the power of AI to fuel product development and drive more revenue growth without increasing costs. It has benefited from this by growing its free cash flow by over 850% over the last three years while lowering its headcount.
2. Shopify's merchants are growing faster than the broader e-commerce market. This reflects a strong competitive moat. Shopify makes most of its revenue from payments and other merchant solutions, which means it's only as successful as the businesses that use it. With merchants in its network outperforming the e-commerce market, it shows that Shopify is delivering on its promise to help merchants succeed in a competitive e-commerce landscape.

The stock should be a rewarding investment for investors buying today. There are a lot of opportunities to sign up more businesses worldwide, and Shopify's opportunity to use AI within its own product development efforts could yield significant gains on the bottom line that aren't reflected in the stock's valuation.

Image source: Getty Images.

2. Duolingo

Duolingo (NASDAQ: DUOL) stock is up 235% over the last three years, and that's after a recent pullback from its 52-week high. The stock's performance reflects the consistent growth in the language learning app's daily active users (DAUs) and financial results. This company is on a mission to disrupt the education market, which Morgan Stanley expects to be worth $8 trillion by 2030.

Duolingo is seeing great traction in gaining more users. DAUs grew 40% year over year in Q2 to nearly 48 million. There is demand for learning, and while there are a lot of options out there, Duolingo has created a fun and engaging experience that is starting to build a strong brand.

Duolingo started with its language learning course, but it has expanded to chess and math, and it will continue to expand to more subjects. Every new course it offers expands its revenue potential, which it earns through subscriptions to Super Duolingo and Duolingo Max, as well as advertising and in-app purchases.

The reason Duolingo could disrupt education is that it is delivering a personalized learning experience using AI. Every user who engages with the app is providing valuable data to Duolingo that it uses to constantly tweak the experience to help users learn and stay engaged.

As the AI models become smarter, Duolingo can efficiently generate new content fairly quickly without significantly increasing costs. This could benefit Duolingo's profitability, similar to Shopify. Over the last three years, the company's trailing-12-month revenue has increased 161% to $885 million, while free cash flow has exploded 900% to $321 million.

Of course, the company's growth is a byproduct of delivering on its promise to help people learn something. This is evident by the faster rate of growth in daily active users over monthly active users, indicating that more of its user base is using the app every day. It's clear Duolingo is in the early stages of building a competitive moat and potentially upending a multitrillion-dollar industry.

Should you invest $1,000 in Shopify right now?

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John Ballard has positions in Duolingo. The Motley Fool has positions in and recommends Shopify. The Motley Fool recommends Duolingo. The Motley Fool has a disclosure policy.