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E-commerce and cloud computing are reshaping the economy. Online shopping is a more convenient alternative to brick-and-mortar retail, and provisioning software and infrastructure from the cloud is more cost-efficient than maintaining private data centers. Neither technology is particularly new at this point, but both industries still offer plenty of potential upside.

For instance, Canadian commerce company Shopify (SHOP 3.51%) and cloud vendor Cloudflare (NET 1.11%) could produce fivefold returns for shareholders over the next decade. That means $200,000 split evenly between both stocks today could be worth $1 million by 2033. Of course, very few individuals have the financial means to put $100,000 into a single stock, and investors should always prioritize portfolio diversity, but the prospect of fivefold returns is compelling regardless of the sum invested.

Here's what investors should know about these growth stocks.

Shopify simplifies commerce. Its software allows merchants to manage sales across physical and digital channels from a single dashboard. That includes online marketplaces, social media, mobile apps, and direct-to-consumer websites. The company also provides adjacent services for logistics, financing, and payment processing, making it a turnkey solution.

Shopify is commonplace among small businesses, but its high-end software is gaining traction with larger brands too. Shopify Plus is a commerce platform engineered for enterprises. It offers more features and support than low-end subscription plans, and Plus merchants get access to exclusive tools for data analytics, marketing, and wholesale commerce. Additionally, Shopify recently launched Commerce Components, a product that allows enterprises to adopt specific components of its commerce software without replacing their entire system. That could mean solutions for storefront design, inventory management, or checkout.

The most important thing investors need to know is that Shopify is the leader in e-commerce software. In fact, its low-end subscription plans collectively rank as the most popular e-commerce software on the market, and Shopify Plus ranks as the second most popular e-commerce software on the market. That dominant competitive position translated into strong financial results in the first quarter despite a difficult macroeconomic backdrop.

Revenue increased 25% to $1.5 billion, an acceleration from 22% growth in the prior-year period. The company also reported a generally accepted accounting principles (GAAP) profit of $0.05 per diluted share, and it generated $100 million in cash from operations. Those metrics compare favorably to the year-ago quarter when Shopify reported a GAAP loss of $1.17 per share while burning through $25 million in cash.

Looking ahead, Shopify is set to accelerate growth as economic conditions improve. Retail e-commerce sales are expected to climb 14% annually through 2030, and wholesale e-commerce sales will increase 20% annually during the same period, according to industry experts. But as the market leader in e-commerce and omnichannel commerce software, Shopify should be able to outpace the industry average.

Here's the case for fivefold returns: Shopify currently has a market cap of about $75 billion, and shares trade at 12.5 times sales. If the company can grow revenue at 20% annually over the next decade -- a reasonable assumption given its market opportunity and its annualized revenue growth of 51% over the last five years -- its market cap could increase fivefold to $375 billion while its valuation falls to a more reasonable 10.2 times sales.

Cloudflare offers a broad range of cloud services that accelerate and protect corporate software and infrastructure. It also provides developer services that allow businesses to build performant applications and websites. The company faces competition from larger cloud vendors like Amazon Web Services and Microsoft Azure, but it has still distinguished itself through engineering expertise.

Specifically, Cloudflare operates the fastest cloud network and developer platform on the market, and industry experts have recognized its leadership in several cloud verticals, including content delivery network software, edge development platforms, and web application firewalls.

Cloudflare reported solid financial results in the first quarter. Its customer count rose 13% to 168,159, and the average customer is spending more with Cloudflare as the company reported a dollar-based net retention rate of 117%. Cloudflare is successfully landing and expanding, even in a difficult economy. In turn, revenue increased 37% to $290 million, and the company generated $36 million in cash from operations, up from a loss of $35 million in the prior year.

Looking forward, investors have good reason to believe Cloudflare can maintain that momentum. The company recently introduced R2 Storage, a faster and cheaper alternative to Amazon S3 Standard. R2 extends the utility of its edge development platform by providing a storage solution for unstructured data like images, videos, and even artificial intelligence models.

Cloudflare also has a significant growth opportunity in security services. As discussed, it runs the fastest cloud network in the world. That value proposition, coupled with its freemium pricing strategy, has drawn a lot of traffic to its network. Cloudflare actually powers about 20%of the web. That affords the company deep insight into security threats across the internet, and that data advantage theoretically means Cloudflare has an edge over other network security vendors.

Here's the case for fivefold returns: Cloudflare has a market cap of $22.9 billion, and the stock trades at 21.4 times sales as of this writing. Management says revenue will increase about fivefold by the third quarter of 2027, which implies annualized growth of 41%. Extrapolating further, revenue could potentially grow at 30% annually over the next decade. That means Cloudflare's market cap could increase fivefold to $115 billion by 2033, while its valuation comes down to just 7.9 times sales. That's why this growth stock is worth buying.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fools board of directors. Trevor Jennewine has positions in Amazon.com and Shopify. The Motley Fool has positions in and recommends Amazon.com, Cloudflare, Microsoft, and Shopify. The Motley Fool has a disclosure policy.

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2 Magnificent Growth Stocks That Could Turn $200,000 Into $1 ... - The Motley Fool