There are many ways to define the “fastest growing” stocks. You can focus on market returns, sales growth, profits, and you can also look at proven results and future expectations. Traditionalists may prefer to analyze reported results and historical market data. Growth-oriented investors can rely on future projections based on rapid sales growth and strong long-term profit targets.
Today, we’ll look at the fastest-growing artificial intelligence (AI) stocks over the past three years in terms of estimated earnings growth. In this way, we focus on companies that are expected to see a lot of business growth in the coming years, regardless of how they performed in the early days of the generative AI boom.
So, here’s our analysis of the top three companies based on their expected compound annual growth rate (CAGR) of top-line sales over the next three years.
1. Nvidia: Estimated CAGR 50.4%
Semiconductor designer Nvidia (NASDAQ:NVDA) It has been growing like wildfire in recent years. Revenue growth over the subsequent three years has now reached a spine-chilling CAGR of 63.8%. OpenAI introduced the groundbreaking ChatGPT system in November 2022. Nvidia has seen sales soar since then as the leading provider of AI accelerator hardware for its platform.
And analysts see no end to this trend. The average analyst firm expects Nvidia to increase annual revenue by approximately 50.4% over the next three years.
I agree that Nvidia should see significant revenue growth in this AI boom. However, as each year-over-year baseline increases, it becomes increasingly difficult to maintain this rapid growth rate. Additionally, I don’t believe the analyst community has enough respect for Nvidia’s current and potential competitors. At the very least, the availability of high-performance AI accelerator chips in large quantities could limit Nvidia’s gross margins over time.
Nvidia looks expensive to me because Wall Street’s growth targets seem a little too optimistic. I cashed out some of the paper profits I made on this stock a few months ago. But the analysts may be right. I would blame myself if Nvidia continued to dominate the AI hardware space and my portfolio had nothing to do with that opportunity. Before you exit or double down on Nvidia’s soaring stock price, you should check your risk tolerance.
2. Supermicrocomputers: Estimated CAGR 36%
Nvidia is a leading seller of AI accelerator chips and super microcomputers (NASDAQ:SMCI) sells a large number of custom server systems using these chips. As a result, Supermicro’s revenue growth has lagged slightly behind Nvidia’s. In an alternate world where Supermicro is the only builder of AI servers, Supermicro might have had growth comparable to or even faster than Nvidia.
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In this world, Supermicro started this rapid growth from a much lower revenue level than Nvidia and is now driving its long-term growth rate faster. Supermicro stands out in the system construction market due to a combination of unique cooling solutions and relatively low system prices.
That said, Supermicro’s target market is more fragmented than Nvidia’s. hewlett packard enterprise (NYSE:HPE) and del (NYSE:Dell) Even in the AI server niche, they sell far more servers than Supermicro. On the positive side, this situation gives Supermicro more room to steal market share from competitors and outperform its peers in the process. On the downside, HP and Dell aren’t going to simply back off and let Supermicro win.
So this is also a challenging growth target. At the same time, Supermicro enjoys a high valuation rating in this subsector. As such, it’s far from my favorite buy idea among AI stocks.
3. Cloudflare: Estimated CAGR 27.7%
Finally, network security and performance specialist Cloudflare (NYSE:Net) It has lagged behind Supermicro’s revenue growth, due to a significant slowdown over the past two years.
Although Cloudflare is not a pure AI investment, the company has strong ties to the emerging AI field. You can already purchase AI-driven edge computing services directly from Cloudflare, using our global network of servers and AI accelerators to deliver results closer to your end users. Its cybersecurity and network acceleration capabilities are also extremely valuable to AI service providers. For example, ChatGPT’s services always pass through Cloudflare’s content distribution and data security tools.
So Cloudflare is a serious AI investment with solid revenue growth. The company is also gradually enhancing its AI computing infrastructure. Meanwhile, Cloudflare recently revamped its sales department, boosting both sales per reseller and operating margin.
Although the stock isn’t exactly cheap, Cloudflare probably has the most compelling long-term growth story on this list. The company is pulling several levers to keep the growth fire burning, and the best chapters of Cloudflare’s story may yet be written.
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Anders Bylund holds a position at Nvidia. The Motley Fool has a position in and recommends Cloudflare and Nvidia. The Motley Fool has a disclosure policy.
These are three of the fastest growing artificial intelligence (AI) stocks. The original article was published by The Motley Fool.
