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The stock market’s one of the most powerful wealth-building tools in modern society. It can occasionally turn into a rollercoaster ride in the short term with stories of stock crashes and volatility. But when compounding is left to work its magic over the long run, patient investors can find themselves immensely rewarded.
Even in the last five years, US stocks have been a terrific place to park some capital despite all the chaos caused by inflation and interest rates. So how much money have investors made since the post-peak-pandemic summer of 2020?
Looking at index investors
Let’s say it’s June 2020, and an investor has £10,000 sat in a savings account and decide to put it into a low-cost S&P 500 index tracker fund. Initially, things start off quite well, climbing by over 60% by the start of 2022.
Of course, then inflation came along, triggering a massive stock market correction that persisted for almost the entire year. But eventually, the US economy got back on its feet as inflation cooled. By this June, despite the ups and downs, the total return of the S&P 500 over the five years reached 113%.
That means the £10,000 initial investment is now worth £21,300. Not bad – but how did stock pickers do?
It’s harder to pinpoint how well individuals performed during this period because that ultimately depends on which stocks they decided to buy. Those who thought Beyond Meat was going to revolutionise the way we eat meat products have been left severely disappointed, losing almost all of their investment.
But those who backed Crowdstrike (NASDAQ:CRWD) and its artificial intelligence (AI)-powered cybersecurity platform have been rewarded with an enormous 400% gain.
Zooming in on Crowdstrike
With the company sucessfully launching new powerful defence solutions for its modular Falcon platform, the company’s been driving up customer spending drastically in the last five years. That’s translated into an explosive 46% average revenue growth rate since 2020, with earnings reaching borderline profitability.
In fact, the company’s expanded so much that it recently graduated, becoming an S&P 500 member last year. And subsequently, a £10,000 investment’s now worth over £50,000!
Cyber attacks are becoming increasingly sophisticated, and AI-powered solutions are now mission critical for many enterprise customers. That’s certainly a powerful tailwind Crowdstrike’s already capitalising on. In other words, the growth story looks far from over.
Expecting another 400% gain by this time in 2030 might be a bit optimistic, given the firm now has a market-cap of $116bn. However, if left to run for longer, this isn’t out of the realm of possibility. Of course, as with every investment, nothing’s guaranteed.
Despite having over 20,000 customers, the bulk of its annual recurring subscription revenues come from its much smaller list of enterprise-scale customers. Losing some of these key clients due to a security breach or another catastrophic software update, like the one in 2024, could slam the breaks on growth. And with the stock trading at a lofty valuation, downward volatility’s almost a certainty in this scenario.
Nevertheless, the long-term growth potential makes this risk potentially worth taking, in my opinion. So investors comfortable with a bit of share price volatility may want to consider taking a closer look.
