The tech sector is home to some of the market's hottest growth stocks. But not all that glitters is gold, and chasing the herd can often result in painful long-term losses. So instead of simply investing in the highest-growth companies, investors should seek out companies with unique business models and wide moats.

I believe these three growth stocks check the right boxes and could rise a lot higher over the next decade: cybersecurity company Zscaler(NASDAQ: ZS), AI analytics company Innodata (NASDAQ: INOD), and fintech leader SoFi Technologies(NASDAQ: SOFI).Image source: Getty Images.

Zscaler

Zscaler develops zero trust cybersecurity services, which treat everyone, including a company's CEO, as a potential threat. Unlike other companies that use on-site appliances, Zscaler provides its tools as cloud-native services, which are stickier and easier to scale as an organization expands.

From fiscal 2019 to 2024 (which ended in July 2024), Zscaler's revenue rose at a compound annual growth rate (CAGR) of 48% as its adjusted net income rose at a CAGR of 76%. Its stock rallied nearly 250% over the past five years.

From fiscal 2024 to 2027, analysts expect Zscaler's revenue to grow at a CAGR of 21%. Its growth is slowing down as its business matures and the macro headwinds make it tougher to land big deals, but it still has plenty of room to expand as more cybersecurity threats emerge.

Its stock might not seem like a bargain at 12 times this year's sales, but I believe its growth potential justifies that higher valuation.

Innodata

Innodata was once considered a tiny and slow-growth analytics company. But in 2018, it launched a suite of task-specific microservices aimed at preparing data for AI applications. When a large company develops a new AI project, it often spends 80% of its time preparing that data and just 20% of the time training the actual AI algorithm.

That's a waste of time for tech companies, which need to feed lots of data into their large language models (LLMs) and other AI tools. That's why five of the Magnificent Seven companies started using Innodata's microservices to prepare their data.

From 2019 to 2023, Innodata's revenue grew at a CAGR of 12%. But from 2023 to 2026, analysts expect its revenue to rise at a CAGR of 42% as its clients process even more data for their AI applications. They also expect it to turn profitable and grow its net income at a CAGR of 23% over the following two years.

Those are incredible growth rates for a stock that trades at just 6 times next year's sales, and it could continue to grow like a weed as the AI market expands.

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SoFi

SoFi operates a one-stop digital shop for personal loans, credit cards, insurance services, estate planning tools, and stock investment services. It also opened a digital-only direct bank after it obtained a U.S. bank charter in 2022.

From the end of 2020 to the end of 2024, SoFi's number of members quadrupled from 2.52 million to 10.13 million. Its payment processing subsidiary Galileo, which it acquired in 2020, hosts 168 million accounts on its own. During those four years, its adjusted revenue grew at a CAGR of 43%. It also finaly turned profitable in 2024.

SoFi continued to grow even as interest payments on student loans were paused from March 2020 to September 2023 and rising interest rates throttled the demand for other loans. But now that the freeze on student loans has thawed as interest rates are stabilizing, SoFi should continue to grow at a faster rate than its brick-and-mortar competitors.

From 2024 to 2026, analysts expect SoFi's revenue to grow at a CAGR of 20% as its net income increases at a CAGR of 9%. It isn't expensive at 5 times this year's sales, and it could have plenty of room to grow as the fintech market expands.

Should you invest $1,000 in Innodata right now?

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Zscaler. The Motley Fool has a disclosure policy.

3 Breakout Growth Stocks You Can Buy and Hold for the Next Decade was originally published by The Motley Fool

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