What it is
A growth stock represents ownership in a company that is anticipated to grow at an above-average rate compared to other companies in the market. These companies typically reinvest most of their earnings back into the business to fund expansion, research, and development, rather than paying out dividends. Investors buy growth stocks expecting significant capital appreciation as the company's valuation increases with its expanding business.
Growth stocks are often found in innovative sectors like technology or biotechnology and frequently have high price-to-earnings ratios, reflecting investor optimism about future earnings. Companies like those in the Magnificent Seven are often considered growth stocks. During bull markets, growth stocks tend to outperform, while in bear markets, they can experience sharp declines due to their higher valuations and sensitivity to interest rates.
Why it matters
Growth stocks offer the potential for substantial capital gains, making them attractive for investors seeking aggressive portfolio expansion. They can be volatile but rewarding.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice