A Bull Market Driven by AI: Why Pinterest and SentinelOne May Outperform Nvidia

Last week marked a significant milestone as Wall Street’s bull market celebrated its two-year anniversary. The combination of a resilient U.S. economy and excitement around stock splits has helped elevate all three major stock indexes to historic heights. However, the most important catalyst for the success of equities appears to be the rapid rise of artificial intelligence (AI).

AI technology’s ability to learn and adapt without human intervention offers tremendous potential. In fact, a report from PwC predicts that the global AI market could be worth $15.7 trillion by 2030, as detailed in their report, Sizing the Prize.

Image source: Getty Images.

Given the immense potential of AI, it is no wonder that semiconductor leader Nvidia (NASDAQ: NVDA) has delivered outstanding returns to its shareholders. In 2023 alone, Nvidia’s shares have skyrocketed over 820%, and its market capitalization has soared by nearly $3 trillion.

Nonetheless, such sharp increases in market value, particularly for industry leaders, are often unsustainable. I predict that two other high-growth companies could outperform Nvidia in terms of investor returns by 2030.

Challenges Ahead for Nvidia

Nvidia is best known for its cutting-edge hardware. Its graphics processing units (GPUs) have quickly become essential in AI-boosted data centers. According to semiconductor analysts at TechInsights, Nvidia was responsible for 98% of GPU shipments to enterprise data centers in 2022 and 2023.

It is reasonable to believe that Nvidia maintained a significant share of AI-GPU shipments this year. CEO Jensen Huang recently referred to the demand for their popular H100 chip as huge, noting that orders for the successor Blackwell chip are “insane.”

However, Nvidia faces several challenges that may hinder its ability to sustain a nearly $3 trillion market cap, much less achieve a higher valuation.

A crucial factor Nvidia must address is historical precedent. Over the last three decades, emerging technologies, including the internet, have typically gone through bubbles at early stages. Investors historically overestimate the uptake of groundbreaking innovations, and there’s no indication that AI will be any different. If a bubble does burst, Nvidia’s stock could suffer considerably.

Moreover, Nvidia is facing competitive pressures. While companies like Advanced Micro Devices ramp up production of AI-GPUs, the most significant risk to Nvidia might come from its own major customers.

Nvidia’s four largest clients are internally developing their own AI-GPUs for their data centers. Although these new chips may not match the performance of Nvidia’s offerings, they will likely be much cheaper and more accessible. With Nvidia’s chips experiencing high demand and backlogs, internal production at its core clients could mean a loss of market share in the data center space.

Currently, Nvidia’s stock is priced with high expectations in a market that seldom turns out to be perfect. Instead of banking on Nvidia’s continued rise, I believe two other growth stocks will outshine it in the coming years.

Image source: Pinterest.

Pinterest: A Growing Advertising Power

The first strong growth stock that may eclipse Nvidia’s returns through 2030 is the social media platform Pinterest (NYSE: PINS).

While advertising-driven models can be cyclical and vulnerable during economic downturns, history shows these recessions are often short-lived, with many economic expansions lasting years. Prolonged growth periods generally encourage increased advertising spending.

Additionally, Pinterest’s monthly active user (MAU) count has been on an upward trend. The platform achieved a record 522 million active users in the June-ended quarter, which is a significant draw for advertisers. The more users Pinterest attracts, the better its ability to leverage ad-pricing power.

Possibly more important than user acquisition is Pinterest’s capability to monetize its existing user base. After a challenging 2023, the site is seeing a rebound, with average revenue per user (ARPU) rising significantly. In the June-ended quarter, global ARPU increased by 8%, with a remarkable year-over-year growth of 16% noted in the U.S. and Canada—its most profitable markets.

Pinterest has strategically structured its business model to sidestep issues faced by app developers, such as data tracking limitations. Users willingly share interests on the platform, which provides valuable insights that businesses can use for targeted advertising, hence increasing their willingness to pay for ad placements.

Lastly, Pinterest boasts a robust balance sheet, holding more than $2.7 billion in cash, cash equivalents, and marketable securities—without any debt. This allows the company to endure economic downturns while also funding shareholder-friendly buybacks.

SentinelOne: A Promising Cybersecurity Future

Another high-growth stock set to outpace Nvidia by 2030 is the emerging cybersecurity firm SentinelOne (NYSE: S).

One significant aspect of cybersecurity is that it has become an essential service as businesses increasingly move data online and into the cloud. Companies now rely heavily on providers like SentinelOne to safeguard their sensitive information. Regardless of economic conditions, the threat from hackers remains persistent, ensuring steady demand for cybersecurity solutions.

SentinelOne’s Singularity platform focuses on endpoint, cloud, identity, and data protection, highlighting its ability to offer comprehensive security services that are crucial in today’s digital landscape.

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SentinelOne: A Strong Contender in Cybersecurity

The company leverages AI and machine learning to enhance its threat detection and response capabilities.

SentinelOne’s subscription-based model is a key advantage, fostering customer loyalty and generating reliable revenue. In its fiscal second quarter, which ended July 31, the company’s annual recurring revenue (ARR) climbed by 32%. Additionally, the adjusted gross margin improved by three percentage points, reaching an impressive 80%.

Notably, the company has been successful in attracting larger clients. The number of customers generating at least $100,000 in ARR increased by 24% to 1,233 compared to the same period last year. More notably, customers contributing $1 million in ARR grew even faster, suggesting that this trend may lead to higher profit margins and a more stable cash flow.

Moreover, much like its peers, SentinelOne has a robust financial position. With over $1.1 billion in cash—and zero debt—its capital reserves are more than sufficient for ongoing innovation and can help the company weather brief market downturns.

Excitingly, SentinelOne is on track to achieve recurring profitability this fiscal year. Analysts on Wall Street project an annualized earnings growth of 40% for the company through fiscal 2029, positioning it as a compelling buying opportunity, potentially outpacing well-known stocks like Nvidia.

Is $1,000 Enough to Invest in Nvidia Right Now?

If you’re considering purchasing Nvidia stock, take a moment to reflect:

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Sean Williams has positions in Pinterest. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Pinterest. The Motley Fool maintains a disclosure policy.

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