There are many ways to define “the fastest growing” stocks. You can focus on market returns, sales growth or profits, and you can look at proven results or future expectations. Traditionalists may prefer to analyze reported results and historical market data. Growth-oriented investors can rely on forward-looking projections based on rapid revenue growth or solid long-term profit targets.
Today I’m looking at the fastest growing artificial intelligence (AI) stocks over the past three years, in terms of estimated revenue growth. This way, I zoom in on companies that are expected to see a lot of business growth in the coming years, regardless of what they did in the early days of the generative AI boom.
So here are the top three names from that analysis, based on the expected compound annual growth rate (CAGR) of their revenue over the next three years.
1. Nvidia: estimated CAGR of 50.4%
It’s no secret that semiconductor designer Nvidia (NASDAQ: NVDA) has grown like wildfire in recent years. Trailing three-year revenue growth is currently at a chilling CAGR of 63.8%. OpenAI introduced its groundbreaking ChatGPT system in November 2022. As the leading supplier of AI accelerator hardware for that platform, Nvidia has seen skyrocketing sales since then.
And analysts see no end to that trend. The average analyst firm expects Nvidia to achieve annual revenue growth of about 50.4% over the next three years.
I agree that Nvidia needs to achieve strong revenue growth in this AI boom. However, it becomes increasingly difficult to maintain these sky-high growth rates as the base figure for each year-over-year comparison increases. Furthermore, I’m not convinced that the analyst community is showing enough respect for Nvidia’s current and potential rivals. If nothing else, having enough powerful AI accelerator chips available could limit Nvidia’s gross profit margins over time.
So Nvidia seems too expensive to me, as Wall Street’s growth targets seem a bit too optimistic. I cashed in some of my paper profits on this stock a few months ago. Yet the analysts may be right. I would be kidding myself if Nvidia continues to dominate the AI ​​hardware world and my portfolio had no connection to that possibility. You should check your risk tolerance before moving away from Nvidia’s soaring stock — or doubling down on it.
2. Supermicrocomputers: estimated CAGR of 36%
Nvidia is the largest seller of AI accelerator chips Supermicrocomputers (NASDAQ: SMCI) sells a lot of custom server systems that use these chips. As a result, Supermicro’s revenue growth lags slightly behind Nvidia’s. In an alternate universe where it was the only builder of AI servers, Supermicro could have shown growth equal to or even greater than Nvidia’s.
In this world, Supermicro started this rise from a much lower revenue level than Nvidia, while currently increasing its long-term growth at a faster rate. Supermicro distinguishes itself in the system construction market with a combination of unique cooling solutions and relatively low system prices.
That said, Supermicro’s target market is even more fragmented than Nvidia’s. Hewlett Packard Enterprise (NYSE: HPE) And Dell (NYSE: DELL) sell many more servers than Supermicro, even in the AI ​​server niche. On the plus side, this situation gives Supermicro more room to capture market share from the competition, thereby outgrowing its competitors. The downside is that the HPs and Dells out there don’t just stand back and let Supermicro win.
So this is again a challenging growth target. At the same time, Supermicro comes with high valuation ratios for this subsector. As such, it’s far from my favorite buying idea among AI stocks.
3. Cloudflare: 27.7% estimated CAGR
Finally, network security and performance specialist Cloudflare (NYSE:NET) lags behind Supermicro’s sales growth due to a significant slowdown over the past two years.
Cloudflare is not a pure AI investment, but the company has strong ties to the emerging AI space. You can already purchase AI-oriented edge computing services directly from Cloudflare, leveraging its global network of servers and AI accelerators to deliver results close to the end user. The cybersecurity and network acceleration features are also quite valuable for AI service providers. For example, ChatGPT’s services always bypass Cloudflare’s content delivery and data security tools.
So Cloudflare is a serious AI investment with robust revenue growth. The company is also expanding its AI computing infrastructure over time. Meanwhile, Cloudflare recently revamped its sales force, increasing both revenue growth per sales agent and operating margin.
The stock is far from cheap, but Cloudflare may be the most compelling long-term growth story on this list. This company is pulling several levers to keep the growth fires burning, and the best chapters of Cloudflare’s story may still be unwritten.
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Anders Bylund has positions at Nvidia. The Motley Fool holds positions in and recommends Cloudflare and Nvidia. The Motley Fool has a disclosure policy.
These Are the Three Fastest Growing Artificial Intelligence (AI) Stocks was originally published by The Motley Fool
