Discovering New AI Stock Opportunities for Future Growth

Nvidia (NASDAQ: NVDA) created a number of millionaires over the last decade, driven by the booming artificial intelligence (AI) market that boosted its data center division. However, with a market capitalization of $3.3 trillion, continuing this streak of millionaire-making gains may prove challenging in the coming years.

Even so, Nvidia remains a strong investment. For those hoping to discover the next big opportunity, smaller companies with potential for at least 20% annual growth over the next few decades might be better bets. Three AI-oriented stocks stand out: Arm Holdings (NASDAQ: ARM), SentinelOne (NYSE: S), and IonQ (NYSE: IONQ).

Image source: Getty Images.

Exploring Arm Holdings: The AI Semiconductor Leader

Arm’s chip designs serve as the foundation for 99% of premium smartphones and are also found in various connected cars, cloud devices, and Internet of Things (IoT) products. Notable companies like Qualcomm, MediaTek, and Apple license Arm’s power-efficient designs.

Instead of making chips, Arm licenses its designs to other manufacturers, earning royalties and fees. This strategy helped Arm avoid competition from x86 CPU makers like Intel and AMD in the mobile chip sector.

Currently, most revenues still come from the fluctuating smartphone market, but Arm is working to diversify its business into automotive and cloud markets. With more AI-focused designs rolling out, there’s potential for improved gross margins. Major chipmakers such as Apple and Qualcomm have adopted the AI-optimized Armv9 architecture for their latest products.

From fiscal 2024 to fiscal 2027, analysts predict Arm’s revenue will grow at a compound annual growth rate (CAGR) of 23%, while earnings per share (EPS) could soar at a CAGR of 88%. Though Arm’s stock trades near 100 times next year’s earnings, its status as a key player in mobile, cloud, automotive, and AI devices suggests more growth ahead.

SentinelOne: Leading the Charge in AI Cybersecurity

Many cybersecurity firms have integrated AI features into their platforms, yet they still rely on human analysts for critical threats. In contrast, SentinelOne’s Singularity XDR (extended detection and response) platform seeks to fully automate threat response through AI tools, claiming efficiency and accuracy benefits over human effort.

Offering both on-premise and cloud solutions, SentinelOne can operate without internet access, giving it an edge over cloud-only competitors like CrowdStrike.

After a strong initial public offering (IPO) three years ago, SentinelOne’s growth has slowed. Still, analysts foresee a CAGR of 27% in revenue from fiscal 2024 to fiscal 2027, anticipating a valuation of 8 times next fiscal year’s sales. As a relatively small company with an enterprise value of $7.3 billion, it could attract interest from larger tech or cybersecurity firms. If it can maintain a growth rate of 20% to 30% annually, SentinelOne could become a significant player in the cybersecurity market.

IonQ: Pioneering Quantum Computing Solutions

Traditional computers rely on binary bits—zeros and ones—to process information. Quantum computers represent a breakthrough, storing data in “qubits,” which can hold both states simultaneously. This advancement could speed up AI processes, though issues like large, costly qubits and error rates currently limit the technology.

IonQ aims to solve these challenges with its cloud-based quantum computing services using innovative “trapped ion” technology. This approach reduces the size of qubit processors from feet to inches, making large-scale quantum systems more achievable and less error-prone.

In 2023, IonQ reported only $22 million in revenue from a few government and research clients. However, analysts predict a staggering CAGR of 87%, with estimates reaching $145 million by 2026 as it expands its customer base and bolsters computing power. While currently unprofitable and valued at 28 times next year’s sales, the company’s potential in the growing quantum computing sector could translate into substantial gains.

Seizing New Investment Opportunities

Has the chance to invest in top-performing stocks passed you by? You may want to take note now.

Occasionally, our expert team identifies a “Double Down” stock poised for immediate growth. If you think you’ve missed your shot, you may want to consider investing now. History provides compelling evidence:

• Amazon: If you invested $1,000 when we doubled down in 2010, you’d have $21,122!*
• Apple: Investing $1,000 when we doubled down in 2008 would earn you $43,756!*
• Netflix: A $1,000 investment when we doubled down in 2004 would be worth $384,515!*

Currently, we are issuing “Double Down” alerts for three remarkable companies, and opportunities like this may not arise again soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of October 14, 2024

Leo Sun has positions in Apple. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, CrowdStrike, Nvidia, and Qualcomm. The Motley Fool recommends Intel and endorses shorting November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.