The S&P 500 has delivered excellent returns over the past year, currently up around 23%. However, the index has delivered an average annual return of around 10% for decades, so if you want to find stocks that beat the market, you need to look for companies that can sustain high double-digit growth for several years.
The artificial intelligence (AI) market is a promising area to look for growth stocks. Statista estimates that spending on AI technology will increase from $184 billion this year to $826 billion in 2030.
Here are two AI stocks that crushed the S&P 500 over the past year and could outperform the index by the end of the decade.
1. Palantir Technologies
Shares of Palantir Technologies (NYSE: PLTR) have soared to new heights as the AI software provider reported accelerated growth this year. The company has relied largely on government deals. However, it is starting to see more companies investing in its software, which could catapult the stock to market-crushing returns over the next six years.
In the second quarter, Palantir reported a robust 27% year-over-year increase in total revenue, with the company closing 10 deals worth more than $10 million. These results are impressive considering the headwinds many software companies are experiencing this year due to tight corporate spending.
Companies appear to be prioritizing investments in AI. After using Palantir, these companies are seeing positive returns, such as faster task completion and better product pricing optimization, which can help a company increase profit margins.
A key advantage for Palantir is the use of software engineers as part of the sales process. The engineers work with customers to set up the software and show them how to get more out of it. This gives Palantir a huge advantage in driving higher sales from customers.
Palantir’s high-margin software business should deliver excellent shareholder returns in the years to come. Wall Street analysts predict that Palantir’s annual earnings will grow by 85% over the next five years, implying a substantial increase in the company’s margins. There will be ups and downs, but investors should expect Palantir stock to at least double in value from current share prices by 2030, outperforming the market averages.
2. Nvidia
Nvidia (NASDAQ: NVDA) It is estimated to control at least 70% of the AI chip market. It has long dominated the market for graphics processing units (GPUs), which have the processing bandwidth to handle the demands of AI training. Nvidia’s lead in GPUs has translated into phenomenal shareholder returns in recent years as companies continue to invest in building more data centers.
Nvidia’s data center revenue more than doubled last quarter from a year ago to $26 billion, and growing opportunities outside the U.S. should allow the company to maintain its momentum next year. As it prepares to launch its next-generation Blackwell AI computing platform, management also continues to emphasize the growing opportunity to provide AI infrastructure for countries around the world.
Foreign countries want to use their own languages and cultures with generative AI tools, and they’re turning to Nvidia to help them build the infrastructure to make it happen. For example, Japan’s National Institute of Advanced Industrial Science and Technology is using thousands of Nvidia H200 GPUs to power its AI Bridging Cloud Infrastructure 3.0 supercomputer.
As Nvidia continues to ride the wave of venture capital, sovereign AI infrastructure could be the next wave that creates significant growth opportunities for the GPU leader. Management believes its sovereign AI business will surpass $10 billion this year.
Nvidia’s stock price is up 160% in the past year, but that’s entirely due to its data center growth. The stock still trades at an attractive forward price-to-earnings ratio of 29 based on next year’s consensus earnings estimates. With analysts predicting 52% annual earnings growth over the next five years, Nvidia stock could significantly outperform the average stock’s return.
Should You Invest $1,000 in Palantir Technologies Now?
Before you buy shares in Palantir Technologies, you should consider the following:
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John Ballard has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.
2 AI Stocks That Could Crush the S&P 500 By 2030 was originally published by The Motley Fool
