2 Unstoppable Stocks That Can Outperform the S&P 500 by 2030

It's a great time to invest money in the stock market. The S&P 500 is up almost 33% in the last 12 months, but it is extremely encouraging that some of the world's strongest companies are still trading at reasonable valuations that offer above-market return potential.

For example, Amazon (AMZN 3.04%) And alphabet (GOOGL 3.94%) (GOOG 3.96%) Stocks trade at price-to-earnings (P/E) ratios of 39 and 22, respectively, which represent typical valuations for growth stocks. However, these companies are expected to grow earnings at significantly higher annual rates than the S&P 500's historical average of 10%.

Investing in dominant companies like Amazon and Alphabet should always be an investor's first choice. If these companies can grow above average, there is no reason to invest your hard-earned money in risky stocks for higher returns.

If you have extra money that you don't need to pay off debts or other expenses, consider investing in these two straightforward stock investments now.

1. Amazon

Amazon has grown into a very large company. Last year, the company generated $620 billion in revenue, including revenue from online retail, subscriptions, advertising and cloud services. However, the company continues to defy the law of large numbers and deliver excellent returns to investors. The inventory has doubled in the last five years.

Don't let Amazon's size and $2 trillion market cap fool you – the stock can double again. Here's why.

Amazon is seeing a drastic improvement in profitability. Management is leaving no stone unturned to optimize inventory placement across the fulfillment center network to reduce delivery costs. While the company won't report high year-over-year growth in net income or free cash flow every quarter, analysts currently expect earnings per share to grow 21% annually over the next few years.

Importantly, Amazon is cutting costs while expanding its use of artificial intelligence (AI) across the company, which could have a positive impact on the company's revenue growth. AI tools like Amazon Bedrock are driving demand for Amazon Web Services, but Amazon is also using AI to improve the shopping experience in its online store. For example, Amazon recently announced that AI Shopping Guides are now available to US customers on Amazon's mobile app. This follows the recent launch of Rufus, Amazon's generative AI-powered shopping assistant.

A common theme of these AI shopping features and management's focus on cost reduction is that they encourage customers to shop on Amazon more often. AI makes it easier to find what you're looking for, and lower costs mean Amazon can sell more items at even lower prices.

These initiatives increase Amazon's competitive advantage and make the company truly unstoppable. Improving retail margins, as well as rising non-retail services profits, can potentially generate enough bottom-line growth to double the share price within the next five years and outperform the S&P 500 index.

2. Alphabet

Alphabet's Google is a ubiquitous brand. Millions, if not billions, of people use products like Gmail, Chrome, Android, YouTube and Google Search. The company has a world-class advertising service that monetizes these products and helps boost Alphabet's total revenue to $339 billion last year.

Thanks to a healthy market for digital advertising, Google was able to increase its revenue by a significant double-digit rate. One of the most powerful tools to keep users engaged with its products and generate more advertising revenue is AI.

Google Search has introduced AI overviews, resulting in more searches. Of course, more searches can lead to more advertising revenue. The company has merged AI Overviews with Lens (Google's visual search tool), giving users powerful new ways to find information and products online.

Like Amazon, Alphabet is able to invest in AI while controlling costs. Profits have grown significantly faster than sales this year, and the Wall Street consensus currently expects Alphabet's profits to grow at an annual rate of 16% in the coming years.

Additionally, Alphabet does not control costs at the expense of investing in the future. The company spent $49 billion on capital expenditures last year, including data centers and AI infrastructure, but still generated free cash flow of $55 billion. Alphabet is drowning in cash, with $93 billion in cash and marketable securities and just $12 billion in long-term debt on its balance sheet.

The Google owner is a rock-solid company. The stock's forecast P/E ratio is just under 21, which seems like a bargain for this leader in digital advertising and AI, which is expected to grow earnings by double digits over the long term. The shares are expected to deliver a return commensurate with the company's underlying earnings growth, causing Google shares to double within five years.