The next big thing? 3 emerging tech stocks to buy and hold over the next 5 years

Stocks like Nvidia have gotten most of the attention over the past 18 months, but nothing lasts forever on Wall Street. Finally, the big move in stocks is over and it’s time to find the next big winner.

These three Motley Fool contributors set out to do just that.

Palantir TECHNOLOGY (PLTR 1.95%), affirm (AFRM 5.44%)and MercadoLibre (MELI -0.83%) emerged as top ideas. These companies have compelling growth potential, but are still early enough to bring investors a lot of money in the coming years.

Consider buying and owning these three emerging tech stocks for the next five years.

Palantir’s excellent year continues

Jake Lerch (Palantir Technologies): There is a name that immediately comes to mind when I think of the emerging tech stocks I want to buy and own: Palantir Technologies.

First, Palantir is really firing on all cylinders. Recently, news broke that Palantir would be joining S&P 500. And while I’ve personally been excited since I predicted that Palantir would join the benchmark, it’s even better for the company, as the announcement sent Palantir shares up 14%. Palantir shares have now more than doubled year-to-date, meaning that when Palantir officially joins the index on September 23, it will likely become the index’s second-best performing stock — just behind. Nvidia.

This exceptional stock performance is due to Palantir’s fantastic growth. In its most recent quarter (the three months ended June 30), the company reported revenue of $678 million, up 27 percent from a year earlier. It also reported net income of $134 million, representing a year-over-year improvement of 87 percent.

PLTR Revenue Data (Quarterly) by YCharts

Similarly, Palantir’s customer base and free cash flow are growing. The company closed more than 27 deals worth more than $10 million as demand for its AI-powered platform continues to grow.

In short, an excellent 2024 has led to Palantir’s inclusion in the S&P 500. This could soon make this once unknown stock a household name. However, there is still time for investors to seize Palantir’s stock. At the time of writing, Palantir shares have yet to recover their all-time high of $45, set back in 2021.

Given how well the company is performing, investors could look at 2024 as a great time to invest in Palantir stock.

Apple’s Buy Now, Pay Later partnership with the Firm could make shareholders a lot of money

Justin Pope (Affirms): Buy Now Pay Later Company Affirm jumps off the page as an obvious long-term winner. The company uses algorithms to lend money one transaction at a time, helping borrowers avoid running into a balance. Affirm is so confident that its customers will repay them that the company does not charge late fees.

Such a consumer-friendly business model (the company makes money from interest and trading fees) has built a base of 18.7 million users. Users can shop directly through the Affirm app or use the Affirm Card, which connects to their bank account and allows shoppers to split purchases into buy now, pay off loans later.

Over 300,000 merchants work with Affirm, including partnerships with merchant giants such as Amazon and Shopify. This has helped Affirm accelerate its revenue growth since the start of last year to nearly 50%:

AFRM Revenue (TTM) data by YCharts

Now, Affirm takes it up a notch. In June, Apple announced that it would end its purchase now, pay for the product later, and use Affirm instead. Affirm will integrate directly with Apple Pay, exposing Affirm to the 153 million iOS users in the United States.

As the Apple deal adds to its already explosive growth, Affirm should grow incrementally over the next five years. Shares are down 77% from 2021 highs, but it’s hard to see that lasting; the company recently posted its first operating profit and should make strides toward bottom-line profitability in the coming years.

Stellar growth and improving financials could force Wall Street to view the stock in a new light, making Affirm a rising star with significant investment potential.

Those who missed out on Amazon can get a second chance with this stock

Will Healy (MercadoLibre): Many investors missed Amazon’s burgeoning e-commerce opportunity as it transformed from an online bookseller into a technology conglomerate driven by e-commerce and the cloud.

However, as Amazon has grown, many investors have missed the explosive growth of south-of-the-border e-commerce giant MercadoLibre. MercadoLibre’s addressable market stretches from Tijuana to Tierra del Fuego and, like Amazon, it started as an online seller. However, Latin America’s unique business challenges have forced it into other businesses.

Unlike the US, Latin America is a cash-based society, where hundreds of millions of consumers do not have a bank account or credit card. To solve this problem, it created Mercado Pago to develop digital financial instruments to enable online shopping. The concept was so successful that MercadoLibre opened it up to customers and businesses that didn’t shop on its e-commerce site.

Shipping and delivery options are also limited in Latin America. So the company formed Mercado Envios to fulfill orders and ship products. In the process, it introduced same-day and next-day shipping to areas where it didn’t exist before.

At a market cap of about $100 billion, it’s a tiny fraction of Amazon’s $1.9 trillion size. However, this smaller size facilitates faster growth, so much so that revenue for the first half of 2024 rose 39% year-over-year to $9.4 billion.

Also, keeping expense growth under control helped the company earn $875 million in the first six months of 2024, an 89 percent increase in net income from year-ago levels.

More investors have taken notice of the stock, and as a result it has risen more than 40% in the past 12 months and is trading near record highs.

Despite this success, it sells at a P/E ratio of 73. However, due to its massive earnings growth, the PEG ratio is just under 0.9. This metric makes MercadoLibre a reasonable price that investors should consider while still having a relatively small market cap.