Nvidia(NASDAQ: NVDA) minted a lot of millionaires during 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 capitalization of $3.3 trillion, it could be tough for Nvidia to deliver more millionaire-making gains over the next few years.
Nvidia is still a solid investment, but investors seeking millionaire-making gains should probably focus on smaller companies that still have plenty of room to grow. Specifically, companies with top lines that can keep growing by at least 20% annually for the next few decades could deliver big multibagger gains for some patient investors. I believe these three AI-oriented stocks fit the bill: Arm Holdings(NASDAQ: ARM), SentinelOne(NYSE: S), and IonQ(NYSE: IONQ).
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The AI semiconductor play: Arm Holdings
Arm's chip designs are currently used in 99% of all premium smartphones and a broad range of connected cars, cloud-based devices, and Internet of Things (IoT) gadgets. Many leading chipmakers -- including Qualcomm, MediaTek, and Apple -- license its power-efficient designs.
Arm doesn't manufacture any chips on its own. It only licenses its chip designs to other chipmakers to generate royalties and licensing fees. That flexibility and scalability helped Arm-based chipmakers prevent x86 CPU makers like Intel and AMD from gaining 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's also gradually expanding into the automotive and cloud markets to diversify its business, and it's rolling out more high-royalty AI-oriented designs to boost 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 increase at a compound annual growth rate (CAGR) of 23% as its EPS increases at a CAGR of 88%. Arm's stock isn't cheap at almost 100 times next year's earnings, but it could generate more multibagger gains over the next few decades if it remains the leading chip architecture for power-efficient mobile, cloud, automotive, and AI devices.
The AI cybersecurity play: SentinelOne
Many cybersecurity companies added AI-powered features to their platforms in recent years, but they still depend on human analysts to tackle the major threats. However, SentinelOne's Singularity XDR (extended detection and response) platform aims to completely replace human analysts with its AI-powered tools. It claims that approach is faster, more efficient, and more accurate than human-driven responses.
SentinelOne also provides its services via a mix of on-premise and cloud-based services, but it can still function without any internet access -- which gives it a distinct advantage against cloud-native platforms like CrowdStrike.
SentinelOne's growth has cooled since its initial public offering (IPO) three years ago, but analysts still expect its revenue to increase at a CAGR of 27% from fiscal 2024 to fiscal 2027 (which ends in January 2027). Its stock still looks reasonably valued at 8 times next fiscal year's sales, and its losses should gradually narrow as it scales up its business.
SentinelOne is still a fairly small company with an enterprise value of $7.3 billion, which makes it a tempting takeover target for a bigger tech or cybersecurity company. But on its own, it could still be a great long-term play on the growing AI and cybersecurity markets. If it can keep its top line growing by 20% to 30% every year for the foreseeable future, it could evolve into a cybersecurity giant and generate some millionaire-making gains.
The quantum computing play: IonQ
Traditional computers still process data in binary bits of zeros and ones. Quantum computers accelerate that process by storing zeros and ones simultaneously in "qubits." That process will likely be used to accelerate AI tasks in the future, but three problems are still holding it back -- qubit processing units (QPUs) are too big and expensive, they consume too much energy, and they make a lot more errors than binary CPUs.
One company that aims to fix those issues is IonQ, a provider of cloud-based quantum computing services. It's using a proprietary "trapped ion" technology to shrink the average width of QPUs from a few feet to a few inches -- 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 for each quantum calculation.
IonQ only generated $22 million in revenue from a handful of government and research customers in 2023, but analysts expect its revenue to increase at a CAGR of 87% to $145 million in 2026 as it scales up its business, increases its computing power, and gains more commercial customers. It isn't profitable yet and its stock isn't cheap at 28 times next year's sales, but it could deliver some massive gains in the future as the quantum computing market expands.
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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 recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
