Embraer, Nvidia and TSMC share key strengths, such as a wide competitive moat and huge market … [+]
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Investing in high-growth companies with a long-term perspective is a proven strategy for building wealth, but not all fast-growing companies are created equal. The opportunity lies in identifying stocks poised to capitalize on sustainable trends, with a minimal risk of degrading into obsolescence. The article highlights a small selection of growth stocks that meet these benchmarks.
Criteria Used for Selecting These Growth Stocks
The selected stocks:
- Operate in sectors with high barriers to entry
- Cater to product-hungry markets where demand far outpaces supply
- Possess significant competitive moats continuously reinforced for long-term relevance
- Focus on product innovation
- Hold investment-grade credit ratings
- Are rated “Buy” or “Strong Buy” by Wall Street analysts
- Have beaten the S&P 500 in terms of historical price performance
3 Growth Stocks For The Next 5 Years
Embraer S.A. (ERJ)
Business Overview
Brazilian aerospace company Embraer (ERJ) produces a fleet of commercial, business and defense jets. It is popular for its single-aisle E175-E2 commercial planes, the C-390 Millennium military transport aircraft and the Phenom 300, a top-seller in the light jet category for the last 12 years. The ERJ stock has climbed more than 125% in the past year, and returned to investment grade credit rating.
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Why ERJ Is A Top Growth Stock Choice
Whether Embraer can disrupt the Boeing-Airbus duopoly, because of Boeing’s brutal year and Airbus’ supply-chain snags, is debatable. However, the Brazilian plane maker appears strategically positioned to capitalize on its robust order backlog and strong performance across all of its segments.
1. Strong backlog
Embraer’s firm order backlog rose to $22.7 billion in the third quarter of 2024, marking its highest level in the past nine years. This provides visibility for steady cash flow in the years ahead.
2. Rising deliveries despite supply chain constraints
Embraer delivered 206 aircraft in 2024, up 14% from 181 in 2023. About 63%, or 130 of these, were executive jets. In 2023, the Brazilian aircraft maker delivered 115 executive jets, representing roughly the same 63% of overall deliveries. It is interesting to note that Embraer allows customers to design their own executive jets using a new aircraft configurator. The company continues to see double-digit growth for aircraft deliveries, revenue and EBIT in 2025 and beyond, even as it navigates its supply chain constraints.
3. Attractive economics of E2 jets position it well for replacement opportunities
Embraer’s E195-E2 jets are gaining traction in the Commercial Aviation sector, due to their superior economics and passenger-friendly design, including no middle seats and 40% larger overhead bins. The E195-E2 will feature automatic takeoff, an industry-first, before the end of this year, and can operate from shorter runways.
Embraer’s E2 family offers 16% lower fuel consumption compared to its first-generation E-Jets, and 25.4% better fuel efficiency per seat. In 2024, Embraer sold 47 E195/E190-E2 jets and 26 E175 jets, up from 39 and 25, respectively, in 2023. The growing need to replace 3,000+ small narrow-body aircraft worldwide presents a significant opportunity for the E2 family over the next few years.
The efficient E195-E2 is profitable at a ~80% load factor, a dynamic that highlights its potential as a preferred choice for both mainline and low-cost carriers, looking to expand connectivity to secondary cities. The number of cities without service or served less than once daily has increased from 49 in 2019 (pre-pandemic) to 85 in 2023, highlighting a significant opportunity for the E2 family’s capabilities.
U.S. airlines are unable to operate the higher-capacity E195-E2 that has a maximum of 146 seats, due to the scope clause in contracts between airlines and pilots’ unions that limits the number of passengers a regional aircraft can carry to 76. If the scope clause is ratified, it may open the floodgates of the U.S. commercial aviation market for the E2 jets.
4. Solid spot in defense
Embraer’s Defense & Security segment continues to perform well, delivering three new generation military multi-mission transport aircraft, the C-390 Millennium, in 2024, up from two in 2023. Embraer’s light attack aircraft A-29 Super Tucano is also seeing strong demand, with over 290 orders. Growing geopolitical complexity across the globe may boost defence budgets, and Embraer may be in the right spot to benefit.
5. Reclaiming investment-grade rating
Embraer has significantly deleveraged its balance sheet over the past three years, lowering its net debt-to-EBITDA leverage ratio to 1.3x in the third quarter of 2024 from 3.9x in 2021 (and 20.7x in 2020). It has no relevant debt to be paid back during the next 2.5 years. The continued improvement in credit metrics has helped the Brazilian airplane-maker return completely to investment-grade rating in 2024.
6. Accolades from customers, analysts
Embraer’s reputation for reliability has earned praise from customers like American Airlines. In an earnings call last year, American Airlines CEO Robert Isom extolled Embraer. “I want to give a shout out to Embraer,” Isom said. “They have delivered day in and day out, throughout the pandemic, no matter the concerns of their supply chain.” American’s regional jet fleet comprises 302 Embraer aircraft and that includes 210 E175s. Bank of America analysts highlighted the fact that Embraer was largely on time and on budget with its projects between 1999 and 2019, calling it “an engineering marvel.”
7. Plans for a new jet rivaling Boeing’s 737
Embraer may reportedly be mulling a new jet to compete with Boeing 737. The Wall Street Journal reported that Embraer is holding talks with potential partners and financial backers on its plans for a new narrow-body aircraft. If reports are to be believed, and everything goes as planned, then Embraer will likely take off to new heights.
NVIDIA (NVDA)
Business Overview
Nvidia (NVDA) has emerged as one of the standout performers in the U.S. stock market, with its stock soaring nearly 1900% in the past five years, despite recent volatilities. This remarkable surge is driven by the skyrocketing demand for Nvidia’s graphics processing units (GPUs), which power nearly all advanced artificial intelligence systems. However, recent DeepSeek revelations have created uncertainty about America’s AI dominance, wiping $600 billion off Nvidia’s market value in a single day, and unseating it from its pedestal as the most valuable company in the world. DeepSeek, reportedly developed for a fraction of the cost of its U.S. rivals, has sparked questions about the continued need for Nvidia’s high-performance and expensive chips. Despite these concerns, I continue to believe that Nvidia is a more reliable bet on the future of AI.
Why DeepSeek May Have Trouble Living Up To The Hype
1. Geopolitical and regulatory risks with DeepSeek
DeepSeek hails from China, and that definitely adds a layer of complexity. The Chinese government’s influence over domestic tech companies, coupled with the potential for sudden regulatory actions, poses a significant risk for investors, especially in light of what happened with companies like Alibaba. Additionally, given the U.S.’s pattern of banning or restricting Chinese tech companies (like TikTok) over national security concerns, a similar fate may await DeepSeek, as the stakes around data privacy and security are even higher with AI technology that handles huge volumes of data. This could potentially hinder DeepSeek’s global scalability.
2. Unproven claims on cost efficiency
DeepSeek claims spending a mere $5.57 million to develop its model, representing a fraction of LLAMA 3.1’s $500 million, but analysts have dismissed this figure, noting it overlooks substantial hidden costs. DeepSeek’s alleged use of 10,000 A100 GPUs may also be inflated, with reports suggesting as many as 50,000 Hopper GPUs were used, which in turn could raise concerns given the ongoing “GPU embargo.”
3. Lack of transparency
DeepSeek clamming up on politically-sensitive questions related to China, but showing willingness to slam Biden and Trump, further distinguishes it from open-source AI models like ChatGPT, which are more transparent and accountable. DeepSeek’s opacity raises doubts about its commitment to openness and responsible AI practices.
4. Nvidia: an established AI ecosystem
DeepSeek is an AI startup, but Nvidia is an AI leader. Nvidia’s strength lies not just in its GPUs, but in its deep and integrated AI ecosystem, including its strategic partnerships and the CUDA platform – the gold standard for GPU acceleration in AI development. Shifting away from CUDA would pose an immense challenge for competitors, giving Nvidia a significant competitive edge. Nvidia itself expressed no existential angst, calling DeepSeek’s open-source reasoning model R1 “an excellent AI advancement.”
Why NVDA Continues To Be A Top Growth Stock Choice
Nvidia’s AI leadership, strong economic moat and proactive product innovation position it for continued growth.
1. Nvidia’s primary economic moat is its innovation
Nvidia does not think out of the box, it thinks like there is no box. The company transformed its graphics processors into powerful AI chips, sparking unprecedented growth. By targeting the right end markets for its Omniverse platform, Nvidia succeeded where Meta struggled with its Metaverse ventures. The impenetrable CUDA armor is a further testimony to its Midas Touch.
2. Blackwell GPU demand outpacing expectations
Nvidia’s next-gen Blackwell GPUs are already in high demand, outstripping supply by a factor of 15. Wedbush analyst Dan Ives notes that Nvidia can supply only one chip for every 15 chips customers are looking to buy. Barclays analyst Tom O’Malley sees Blackwell GPUs adding $15 billion to Nvidia’s sales in the current quarter, with the potential to double in the next quarter. UBS analyst Timothy Arcuri now sees Blackwell revenues of $9 billion for the January quarter vs. prior expectations of $5 billion, with sales rising in the next few years.
3. NVIDIA’s sovereign AI initiatives gathering momentum as India, Japan sign up
NVIDIA’s Sovereign AI initiatives are gaining significant traction as India and Japan embrace the company’s accelerated computing for a new era of AI-driven industrial transformation. India’s Cloud Service Providers (CSPs), including Tata Communications, are constructing AI factories, with Nvidia GPU deployments in the country expected to increase nearly 10x by year-end. Japan is building its most powerful AI supercomputer using Nvidia’s DGX Blackwell.
4. Immense growth potential in autonomous vehicles and robotics
Nvidia’s Automotive and Robotics segment posted third-quarter revenues of $449 million, a small fraction vs. its record data center revenues of $30.8 billion. However, with its Cosmos foundation models, Nvidia is poised for massive growth in the autonomous vehicles and robotics sectors. Cosmos foundation models generate photo-realistic video to facilitate the training of robots and self-driving vehicles at a significantly reduced cost vs. using traditional data. Huang notes “We really hope (Cosmos) will do for the world of robotics and industrial AI what Llama 3 has done for enterprise AI. Analyst Ives sees Nvidia reaching a market cap of $5 trillion as it unlocks this underappreciated growth opportunity in Robotics and AVs.
3. Taiwan Semiconductor Manufacturing Co. (TSM)
Business Overview
TSMC is a leading contract chip manufacturer, producing AI chips for major companies like Nvidia, Apple, Qualcomm, AMD and even Intel. TSMC’s foundry dominance is built on years of investment in cutting-edge process technologies, along with a commitment to a pure-play foundry model and a strategic policy of not competing with its clients. This has allowed TSMC to capture nearly 65% of the global semiconductor foundry market share, far outpacing Samsung, which holds just 9.3%.
Why TSM Is A Top Growth Stock Choice
TSMC’s near monopoly in producing advanced chips for AI and other futuristic technologies, coupled with its relentless push for smaller nodes and more efficient processes sets it a class apart.
1. Pole positioning as a critical AI enabler
TSMC enjoys unparalleled leadership in the production of advanced semiconductors powering AI and data centers because of its superior process technology, strong foundry design ecosystem and reputation as a consistent and reliable chip maker. This unique positioning gives it pricing power and the confidence to set a target for long-term gross margins of 53% and higher. TSMC is reportedly looking at a 5% hike in wafer prices for 2025. The company affirmed that it sells its U.S.-made wafers at a slight premium to Taiwan-made ones, because of the higher cost structure in the U.S.
2. AI accelerators to drive 5-year growth
Revenue from AI accelerators, including AI GPU, AI6, and HBM controller for AI training and inference in the data center, accounted for close to mid-teens percent of TSMC’s total revenue in 2024. Even after more than tripling in 2024, revenue from AI accelerators is expected to double in 2025 as the strong surge in AI-related demand continues. TSMC forecasts revenue growth from AI accelerators to approach a mid-40% CAGR for the five-year period from 2024. AI accelerators are seen as the strongest driver of TSMC’s High Performance Computing (HPC) platform growth and the largest contributor in terms of overall incremental revenue growth in the next several years.
3. Long-term revenue growth at a 20% CAGR
For the five-year period starting from 2024, TSMC expects long-term revenue growth to approach a 20% CAGR in U.S. dollar terms, fueled by all of its growth platforms – smartphone, HPC, IoT and automotive.
4. Strong U.S. relationships
For the skeptics worried about the U.S. export curbs on chips, it would be good to know that TSMC emphasizes its long-standing, good relationship with the U.S., and is building fabs in Arizona. Its first fab in Arizona has already entered high-volume production in the fourth quarter of 2024, utilizing N4 process technology with a yield comparable to its fabs in Taiwan. TSMC’s plans for two more fabs in Arizona are also on track. These fabs will use advanced technologies such as N3, N2, and A16.
5. Upcoming 2-nm node presents strong potential
TSMC’s Industry-leading 2-nanometer and A16 technologies meet the insatiable need for energy-efficient computing. N2 is well on track for volume production in the second half of 2025. Other future offerings like N2P and A16 that are scheduled for volume production in the second half of 2026, feature further performance and power benefits over N2.
Bottom Line
Embraer, Nvidia and TSMC share key strengths, such as a wide competitive moat and huge market demand, positioning them for significant future growth. However, these companies don’t simply rest on their laurels; they continue to innovate ensuring their growth drivers remain relevant and impactful over the long term. With AI driving the growth narrative forward, Nvidia and TSMC are key beneficiaries. Embraer is well positioned to benefit as it serves a critical sector with its much-needed solid engineering capabilities amid strong demand dynamics, and its ability to successfully navigate supply chain constraints.