Nvidia (NASDAQ: NVDA) has minted many millionaires over the past decade as the growth of the artificial intelligence (AI) market generated fierce tailwinds for the GPU maker’s data center business. But with a market cap of $3.3 trillion, it could be difficult for Nvidia to generate more millionaires in the coming years.
Nvidia is still a solid investment, but investors looking for millionaire profits should probably focus on smaller companies that still have plenty of room to grow. In particular, top performing companies that can continue to grow at least 20% annually for decades to come could deliver big multibagger returns for some patient investors. I believe these three AI-oriented stocks are suitable: Arm positions (NASDAQ:ARM), SentinelOne (NYSE:S)And IonQ (NYSE: IONQ).
The AI ​​semiconductor game: Arm Holdings
Arm’s chip designs are currently used in 99% of all premium smartphones and a wide range of connected cars, cloud-based devices and Internet of Things (IoT) gadgets. Many leading chipmakers – included QualcommMediaTek and Apple — licensing its energy-efficient designs.
Arm does not produce chips itself. It only licenses its chip designs to other chip manufacturers to generate royalties and licensing fees. That flexibility and scalability helped Arm-based chipmakers leapfrog x86 CPU makers Intel And AMD to gain a meaningful foothold in the mobile chip market.
Arm still generates most of its licensing and royalty revenue from the cyclical smartphone market. But it is also gradually expanding into the automotive and cloud markets to diversify its business, and introducing more AI-focused designs with high royalties to increase its gross margins. Many major chipmakers, including Apple and Qualcomm, have already adopted Arm’s AI-optimized Armv9 architecture to produce their latest chips.
From fiscal 2024 to fiscal 2027 (which ends in March 2027), analysts expect Arm’s revenue to grow at a compound annual growth rate (CAGR) of 23%, while earnings per share will rise at a CAGR of 88%. Arm’s stock isn’t cheap at nearly a hundred times next year’s earnings, but it could generate more multibagger profits in the coming decades if it remains the leading chip architecture for low-power mobile, cloud, automotive and AI devices.
The AI ​​cybersecurity game: SentinelOne
Many cybersecurity companies have added AI-powered features to their platforms in recent years, but they still rely on human analysts to tackle the biggest threats. However, SentinelOne’s Singularity XDR (extended detection and response) platform aims to completely replace human analysts with its AI-powered tools. It claims this approach is faster, more efficient and more accurate than human-driven responses.
SentinelOne also offers its services through a mix of on-premises and cloud-based services, but can still function without any internet access – giving it a clear advantage over cloud-native platforms such as CrowdStrike.
SentinelOne’s growth has cooled since its IPO three years ago, but analysts still expect revenue to grow at a CAGR of 27% between fiscal 2024 and fiscal 2027 (which ends in January 2027). The shares still appear reasonably valued at eight times next fiscal year’s sales, and losses should gradually narrow as the company scales up its operations.
SentinelOne is still a fairly small company with an enterprise value of $7.3 billion, making it a tempting acquisition target for a larger technology or cybersecurity company. But on its own, it could still be a great long-term strategy for the growing AI and cybersecurity markets. If it can grow its revenue by 20% to 30% every year for the foreseeable future, it could emerge as a cybersecurity giant and generate some profits that could make millionaires.
The quantum computer game: IonQ
Traditional computers still process data in binary bits of zeros and ones. Quantum computers speed up that process by storing zeros and ones simultaneously in ‘qubits’. That process will likely be used to speed up AI tasks in the future, but three problems are still holding it back: qubit processing units (QPUs) are too large and expensive, they consume too much energy, and they make many more errors than others . binary CPUs.
One company looking to solve these problems is IonQ, a provider of cloud-based quantum computing services. It uses a proprietary ‘trapped ion’ technology to reduce the average width of QPUs from a few meters to a few centimeters – and that miniaturization process could make it much easier and cheaper to build large quantum computing systems. Those larger systems could also reduce the number of errors in each quantum calculation.
IonQ generated just $22 million in revenue from a handful of government and research customers in 2023, but analysts expect revenue to grow at an 87% CAGR to $145 million by 2026 as the company scales its operations, increases its computing power and wins more commercial customers. It’s not yet profitable and its shares aren’t cheap (28 times next year’s sales), but it could deliver huge profits in the future as the quantum computing market grows.
Should You Invest $1,000 in Arm Holdings Now?
Consider the following before purchasing shares in Arm Holdings:
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Leo Sun has positions at Apple. The Motley Fool holds positions in and recommends Advanced Micro Devices, Apple, CrowdStrike, Nvidia, and Qualcomm. The Motley Fool recommends Intel and recommends the following options: Short November 2024 $24 Calls on Intel. The Motley Fool has a disclosure policy.
3 Artificial Intelligence (AI) Stocks That Could Make You a Millionaire was originally published by The Motley Fool
