Last week, Wall Street’s bull market celebrated its two-year anniversary. While a resilient U.S. economy and stock split euphoria have played a major role in pushing all three major stock indexes to record highs, nothing has been more critical to the success of stocks than the artificial intelligence (AI) revolution .
The ability of AI-powered software and systems to learn and evolve without the need for human intervention gives this technology seemingly limitless possibilities. Last year, PwC analysts estimated this global opportunity at $15.7 trillion in 2030 in their report: Determine the price.
Given the addressable market for AI, it’s not surprising to see semiconductor titan Nvidia (NASDAQ: NVDA) record-breaking returns for its shareholders. Since the start of 2023, the company’s shares have risen more than 820%, with its market capitalization increasing by almost $3 trillion.
However, near-parabolic increases upwards are rarely, if ever, sustainable, especially for market-leading companies. It’s my prediction that two other hypergrowth stocks have the tools and intangibles needed to orbit Nvidia in the returns column through 2030.
History suggests that Nvidia’s historic run will come to an abrupt halt
Nvidia’s claim to fame is its hardware. The company’s graphics processing units (GPUs) have quickly become a key component of AI-accelerated data centers. TechInsights semiconductor analysts estimate that Nvidia was responsible for 98% of GPU shipments to enterprise data centers in 2022 and 2023.
There are strong reasons to believe that Wall Street’s AI darling also retained the lion’s share of AI GPU shipments this year. Orders for the ultra-popular H100 are lagging, and CEO Jensen Huang recently called demand for the successor to the Blackwell chip “insane.”
But there are challenges Nvidia faces that simply don’t justify the company’s nearly $3 trillion increase in market cap, let alone a higher valuation.
History may be the biggest hurdle Nvidia will have to overcome. Including the advent of the Internet, there has been no next-big-thing technology or innovation in thirty years that has avoided an early-stage bubble. Investors have consistently overestimated the adoption of breakthrough innovations and technologies, and there is no indication that this will not be the case with artificial intelligence. If the AI bubble bursts, Nvidia’s stock will undoubtedly be hit hard.
There are also competitive pressures to consider. Although it is a known fact that rivals like it Advanced micro devices As production of AI GPUs ramps up and new chips are introduced, the bigger threat to Nvidia’s bottom line will likely come from within.
Nvidia’s four largest customers by net revenue are all developing AI GPUs in-house for their data centers. Despite these chips being inferior to the computing capabilities of Nvidia’s GPUs, they will be significantly cheaper and easier to access. Remember, Nvidia’s chips are lagging behind due to high demand. Internal AI GPU development from the company’s core customers likely means it will lose out on valuable data center real estate in the coming years.
Nvidia stock is currently priced for perfection in a world where things are rarely perfect. Rather than betting that Nvidia stock will rise, I predict that the next two hypergrowth stocks will ultimately leave Wall Street’s AI darling in the dust.
The first high-octane growth stock that could run laps over Nvidia in the returns column until 2030 is the social media platform Pinterest (NYSE: PINS).
Even though ad-driven business models are cyclical, which would expose Pinterest’s stock and business performance to negative impacts during recessions, the economic cycle is not linear. While recessions often resolve in less than twelve months, most economic expansions rarely last for several years, if not a full decade. Long periods of growth tend to boost ad spend.
In addition to time being clearly on its side, Pinterest’s number of global monthly active users (MAU) has been steadily increasing over the long term. Pinterest recorded the highest number of active users (522 million) during the quarter ended June. There aren’t many social sites with over half a billion MAUs, which acts as a dangling carrot for companies looking to advertise. The more MAUs Pinterest has, the more likely it is to have strong ad pricing.
What may be even more important than attracting active users is Pinterest’s ability to monetize the users it has. After a challenging 2023, which was mainly bogged down by economic uncertainty, average revenue per user (ARPU) is again rising sharply. In the quarter ended June, global ARPU rose 8%, with the strongest ARPU growth (16% year-on-year) coming from the most lucrative markets, the US and Canada.
This is also a good time to mention that Pinterest has positioned its business model perfectly to avoid headwinds for app developers, such as the ability to turn off data tracking. The entire premise of the Pinterest platform is that users voluntarily and freely share the things, places, and services that interest them. This is invaluable information that can help businesses target Pinterest’s users – and it’s another reason why businesses will pay more to advertise on Pinterest.
The final piece of the puzzle is Pinterest’s impeccable balance. It has more than $2.7 billion in cash, cash equivalents and marketable securities, with no debt. This gives the company the financial flexibility to weather a recession and make shareholder-friendly buybacks.
SentinelOne
The second hyper-growth stock that appears to be on track to handily outperform AI giant Nvidia through 2030 is an emerging cybersecurity stock. SentinelOne (NYSE:S).
The great thing about cybersecurity is that it has steadily developed into a basic need service. As companies move their data, and that of their customers, online and into the cloud at an accelerated pace, they are increasingly relying on third-party vendors like SentinelOne to protect this information. No matter how well or poorly the global economy performs, hackers don’t take time off. This means that the demand for cybersecurity solutions is constant in almost any economic climate.
The company’s Singularity platform, which focuses on endpoint, cloud, identity and data protection services, is what drives the company. Singularity relies on AI and machine learning to become more effective at recognizing and responding to potential threats over time.
One factor that undeniably works in the company’s favor is its subscription-based model. A subscription-based cybersecurity model keeps customers loyal to the brand and generates highly predictable sales and operating cash flow year after year. Annual recurring revenue (ARR) for the company’s second fiscal quarter (ended July 31) rose 32%, while adjusted gross margin rose three percentage points to a mouthwatering 80%.
SentinelOne also demonstrates its talent for landing larger fish. The number of customers generating at least $100,000 in ARR increased 24% to 1,233 from the same period last year, while the number of customers generating $1 million in ARR for the company grew even faster. Larger customers should lead to higher margins and more stable cash flow generation.
Like Pinterest, SentinelOne is sitting on a sizable treasure chest. Including short- and long-term investments, it has more than $1.1 billion in cash, without debt. The country has more than enough capital to continue to innovate and has the ability to weather short-term recessions with confidence.
The icing on the cake is that SentinelOne is expected to achieve recurring profitability in the current fiscal year. Given Wall Street’s forecast of 40% annualized earnings growth for the company through fiscal 2029, it has all the makings of a no-brainer purchase that could revolve around Nvidia.
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Sean Williams has positions on Pinterest. The Motley Fool holds positions in and recommends Advanced Micro Devices, Nvidia, and Pinterest. The Motley Fool has a disclosure policy.
Prediction: 2 Hyper Growth Stocks That Will Revolve Nvidia Through 2030 was originally published by The Motley Fool
