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 analyzing reported results and historical market data. Growth-oriented investors can lean into forward-looking projections, based on rapid top-line growth or beefy long-term profit targets.
Today, I'm looking at the fastest-growing artificial intelligence (AI) stocks of the last three years, in terms of estimated revenue growth. This way, I'll zoom in on companies with plenty of business growth expected in the years ahead, no matter what they did in the early days of the generative AI boom.
So here are the top three names of that analysis, based on their top-line sales' expected compound annual growth rate (CAGR) in the next three years.
1. Nvidia: 50.4% estimated CAGR
It's no secret that semiconductor designer Nvidia(NASDAQ: NVDA) has grown like wildfire in recent years. Its trailing 3-year revenue growth stands at a spine-chilling CAGR of 63.8% at the moment. OpenAI introduced its groundbreaking ChatGPT system in November 2022. As the primary provider of AI accelerator hardware for that platform, Nvidia has enjoyed skyrocketing sales ever since.
And analysts see no end to that trend. Your average analyst firm expect Nvidia to deliver annual sales growth of roughly 50.4% over the next three years.
I agree that Nvidia should deliver strong sales growth in this AI boom. However, it gets harder and harder to maintain these skyrocketing growth rates as the base figure for each year-over-year comparison increases. Moreover, I'm not convinced that the analyst community gives enough respect to Nvidia's current and potential rivals. If nothing else, having plenty of high-powered AI accelerator chips available could limit Nvidia's gross profit margins over time.
So Nvidia looks overpriced to me, since Wall Street's growth targets seem a bit too optimistic. I cashed in some of my paper gains on this stock several months ago. Yet, the analysts might be right. I'd be kicking myself if Nvidia continues to dominate the AI hardware space and my portfolio had no connection to that opportunity. You should check your risk tolerance before backing away from Nvidia's soaring stock -- or doubling down on it.
2. Super Micro Computers: 36% estimated CAGR
Nvidia is the leading seller of AI accelerator chips, and Super Micro Computers(NASDAQ: SMCI) sells a ton of custom server systems using those chips. As a result, Supermicro's sales growth is trailing slightly behind Nvidia's. In an alternate universe where this 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 surge from a much lower revenue level than Nvidia, as is currently raising its long-term growth rate faster. Supermicro stands out in the system-building market with a combination of unique cooling solutions and relatively low system prices.
That being said, Supermicro's target market is even more fragmented than Nvidia's. Hewlett Packard Enterprise(NYSE: HPE) and Dell(NYSE: DELL) sell far more servers than Supermicro, even in the AI server niche. On the upside, this situation gives Supermicro more room to take market share from rivals, outgrowing its peers in the process. On the downside, the HPs and Dells out there won't simply stand back and let Supermicro win.
So this is another challenging growth target. At the same time, Supermicro comes with lofty 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) trails behind Supermicro's revenue growth due to a significant slowdown in the last two years.
Cloudflare isn't a pure-play AI investment, but the company has strong ties to the emerging AI space. You can already buy AI-oriented edge computing services directly from Cloudflare, using its global network of servers and AI accelerators to deliver results near the end user. Its cybersecurity and network acceleration features are also quite valuable for AI service providers. For example, ChatGPT's services always pass through Cloudflare's content delivery and data security tools.
So Cloudflare is a serious AI investment with robust revenue growth. The company is also boosting its AI computing infrastructure over time. Meanwhile, Cloudflare recently revamped its sales department, boosting both its revenue growth per sales agent and operating margin.
The stock is far from cheap, but Cloudflare is perhaps the most convincing 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 in Nvidia. The Motley Fool has positions in and recommends Cloudflare and Nvidia. The Motley Fool has a disclosure policy.
