One common hope for growth investors is finding the stock that will make them millionaires with a small investment. Tech stocks like Amazon and Microsoft have accomplished such feats for long-term investors.
But since these companies have matured and are growing more slowly, the goal is to find the next Microsoft. The following two small companies have growth prospects that could translate into millionaire-making potential.
1. DigitalOcean
DigitalOcean (NYSE: DOCN) might not look like a millionaire maker at first glance. It is one of many cloud infrastructure providers, and with competitors such as Amazon and Microsoft, you might wonder how it can compete with a market cap of less than $4 billion.
DigitalOcean primarily serves small and medium-size businesses (SMBs), which account for 33 million enterprises in the U.S. alone, according to the Small Business Administration. To this end, the company has developed a business model that the larger players cannot compete against without undermining their own businesses.
For one, it has transparent pricing, meaning businesses simply buy the services they need. Second, it offers the DigitalOcean Community, a combination of educational materials and access to its other users that can help small businesses solve IT-related problems without expensive personnel.
Moreover, the advent of generative artificial intelligence (AI) will likely stoke demand for its services. Nvidia H100 AI chips can cost about $30,000 each, too costly for most SMBs. But DigitalOcean can offer access to this technology through its Paperspace platform, making it more likely SMBs will turn to the company.
This value proposition likely helped revenue in 2023 reach $693 million, 20% more than in 2022. And thanks to efforts to limit operating expense growth, DigitalOcean turned a profit, earning $19 million in net income; it lost $28 million in the previous year.
The stock’s behavior points to some uncertainty. Shares only rose 15% over the last year and still sells at a 70% discount to its 2021 high. Furthermore, the company has recently undergone changes at the top, appointing Paddy Srinivasan as its new CEO in February.
Srinivasan has extensive leadership experience in the industry, most recently at software-as-a-service company GoTo and several other tech companies, and his direction could reinvigorate DigitalOcean.
Its forward price-to-earnings (P/E) ratio is 24, making it inexpensive by just about any measure. As more enterprises turn to the cloud and AI, DigitalOcean appears well positioned to serve the massive base of SMBs, which could eventually take its stock much higher.
2. Nu Holdings
Nu Holdings (NYSE: NU) operates one of the world’s largest digital banks, but you could be forgiven for overlooking it. While Warren Buffett’s Berkshire Hathaway was an early investor, it only operates in Brazil, Mexico, and Colombia, making Nu Holdings easy to miss.
Those who notice the company can also miss its value proposition. Unlike the U.S., Latin America is a region with few traditional banks. That left much of the population unable to get a bank account or credit card.
The company’s Nubank has changed that, giving millions of Brazilians their first credit card. And since most Latin Americans have smartphones, the bank can interact with customers without having to maintain physical branches.
This approach has been so successful in Brazil that 88 million customers, or 53% of the country’s adult population, have at least one Nu account. Also, with the bank saturating the market in Brazil, it has expanded to Mexico and Colombia, which account for around 6 million customers combined. Early signs of success in those countries indicate Nu’s rapid expansion could continue for years.
Those increases led to $8 billion in revenue in 2023, a 68% increase from a year ago. And Nu Holdings recently turned profitable on an annual basis, earning $1 billion in net income after losing $365 million in 2022.
Investors have begun to take notice, and the stock is up more than 180% over the last year.
Nu Holdings is also priced attractively for new investors. At a P/E of 58 and a forward P/E of 31, the stock is inexpensive considering the rapid growth. This earnings multiple might make now a good time to buy before more investors discover this fintech stock.
Should you invest $1,000 in DigitalOcean right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Healy has positions in Berkshire Hathaway, DigitalOcean, and Nu. The Motley Fool has positions in and recommends Amazon, Berkshire Hathaway, DigitalOcean, Microsoft, and Nvidia. The Motley Fool recommends Nu and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
2 Top Tech Stocks That Could Make You a Millionaire was originally published by The Motley Fool
