How to invest in growth stocks – plus 3 share ideas

Atlassian is a high-growth software company that has rapidly established itself as one of the leaders in the collaboration and project management space. Known for products like Jira, Confluence and Trello, Atlassian’s software tools help teams streamline workflows, solve problems and improve productivity.

These tools have use cases across a broad range of industries including tech, finance, healthcare and many more. That means the potential customer base is huge and there’s still a lot of market for Atlassian to go for.

Businesses are increasingly shifting their systems to the cloud rather than on-premises, so the demand for flexible, scalable, and easily accessible tools is skyrocketing. This trend helped fuel revenue growth of 23% to $4.4bn in 2024.

Once Atlassian’s software products are adopted, they often become integral to the operations, which helps to keep its customer retention rates very high.

Management believes its best marketing is a great product, so advertising and sales team expenses are some of the lowest among peers, which is helping to keep margins healthy. That translated into underlying operating profits of $1.0bn in 2024, and markets are forecasting that to grow above 20% for at least the next four years.

Investors should keep in mind that Atlassian’s having to invest heavily to maintain its edge.

New artificial intelligence (AI) tools have the potential to fuel the next leg of growth and efficiency, but there’s no guarantee these investments pay off.

Competition is also tough, with some products overlapping with those from the likes of Microsoft, which has much deeper pockets.

Atlassian’s exceptional suite of products and rising demand have earned it a premium valuation relative to many of its peers. We’d argue that potential profit growth could justify this premium. But it also increases risk, and the valuation is likely to be punished if demand doesn’t materialise or operational missteps occur.

Shopify is the go-to platform for entrepreneurs and small businesses looking to set up and scale their own online stores.

In a world where e-commerce continues to boom, Shopify provides the tools needed to create, manage, and grow a digital business – from building a website to managing payments and inventory.

The subscription-based platform offers various pricing tiers to suit businesses of different sizes, leading to relatively sticky revenue streams. Shopify also generates revenue from transaction fees, taking a slice of each sale processed on its platform.

Despite being a major player in a competitive space, there’s plenty more of the pie to jostle for. Shopify has a great platform, so markets are forecasting revenue and operating profits to grow above 20% for at least the next three years, with very healthy free cash flow margins.

Shopify’s not resting on its laurels though.

The group’s still in growth mode, investing to upgrade its infrastructure and the range of solutions clients can subscribe to. New AI functionality is helping merchants to automate various processes, improve product recommendations and lower customer service costs.

Social e-commerce (on social media platforms like TikTok and Instagram) is another growth driver.

This avenue is forecast to grow around 40% annually out to 2028, reaching $340bn in volumes just in the US. Given its tilt towards smaller-sized businesses and younger consumers, Shopify looks well-positioned to capture a good chunk of this growth.

Shopify’s typical customers are small and medium-sized businesses that tend to be more susceptible to weakness in the broader economy. A slowdown in economic growth or rising inflation could cause customers to cut back on non-essential purchases, which would weigh on Shopify’s performance.

We’re impressed by Shopify’s leading proposition and ability to integrate itself into merchant’s operations. International expansion and new AI tools have the potential to drive the next leg of growth.

However, competition will likely remain fierce. And the lofty valuation will be sensitive to any disappointments along the way.

TSMC (Taiwan Semiconductor Manufacturing Company) is the world’s largest contract manufacturer of the semiconductors essential to everyday devices from smartphones to advanced AI systems.

TSMC turns designs from industry leaders like Apple, AMD, and NVIDIA into high-performance chips for their specific use cases. Its advanced manufacturing process allows it to cost-effectively produce smaller, faster, and more-efficient chips.

The company’s dominant market position, combined with its exposure to rapid increases in demand for computing power, positions it as an attractive opportunity in our view.

And strong revenue performance and margins demonstrate TSMC's ability to translate market leadership into tangible results.

That same leadership also means it can become caught in the geopolitical tug of war that accompanies this strategically important industry. Tariffs, other trade restrictions, and China’s claims over Taiwan are all risks to keep an eye on.

TSMC is investing heavily overseas to diversify its manufacturing footprint.

Its expansion plans are well supported by a strong balance sheet as well as impressive cash flows, so it should be well placed to cope if it does encounter some growing pains.

Expanding capacity appears aligned with how much demand could grow by, particularly for advanced chips for AI applications. But there’s no guarantee that the outstanding efficiency of its domestic plants will be replicated elsewhere, like in the US.

Speculation over a tie-up with Intel represents an interesting wild card which could fast-track capacity growth in the US. Such a complex move could also prove to be a huge distraction for management.

The uncertainty surrounding the trade outlook for the semiconductor industry has seen TSMC’s valuation fall relatively rapidly over the last year, and now sits below the long-term average.

However, revenue is still forecast to grow by over 20% on average over the next three years.

We believe the shares look attractive for those who are willing to tolerate the additional risk related to macro-factors beyond the company’s control.