Last week, Wall Street's bull market celebrated its two-year anniversary. Although a resilient U.S. economy and stock-split euphoria have played important roles in lifting all three major stock indexes to record highs, arguably nothing has been more pivotal to the success of equities than the artificial intelligence (AI) revolution.
The ability for AI-driven software and systems to learn and evolve without the need for human intervention gives this technology seemingly limitless potential. Last year, the analysts at PwC pegged this global opportunity at $15.7 trillion by 2030 in their report, Sizing the Prize.
Image source: Getty Images.
Considering the addressable market for AI, it's not surprising to see semiconductor titan Nvidia(NASDAQ: NVDA)delivering record-breaking returns to its shareholders. Since 2023 began, shares of the company have catapulted more than 820%, with its market cap expanding by close to $3 trillion.
However, near-parabolic moves higher -- especially for market-leading businesses -- are rarely, if ever, sustainable. It's my prediction that two other hypergrowth stocks have the tools and intangibles needed to run circles around Nvidia in the return column through 2030.
History suggests Nvidia's historic run will come to an abrupt halt
Nvidia's claim to fame is its hardware. The company's graphics processing units (GPUs) have rapidly become a staple in AI-accelerated data centers. The semiconductor analysts at TechInsights estimate Nvidia accounted for 98% of GPU shipments to enterprise data centers in 2022 and 2023.
There's strong reason to believe Wall Street's AI darling retained the lion's share of AI-GPU shipments this year, as well. Orders for the ultra-popular H100 are backlogged, and CEO Jensen Huang recently called demand for the successor Blackwell chip, "insane."
But there are challenges Nvidia is set to face that simply don't justify the company sustaining a nearly $3 trillion increase in market cap, let alone a higher valuation.
History might be the biggest hurdle Nvidia will have to overcome. Including the advent of the internet, there hasn't been a next-big-thing technology or innovation for three decades that's avoided an early stage bubble. Investors have consistently overestimated the adoption of game-changing innovations and technologies, and there's nothing to suggest this won't be the case with artificial intelligence. If the AI bubble does burst, Nvidia's stock would undoubtedly be hit hard.
There are also competitive pressures that need to be taken into account. While it's a well-known fact that rivals like Advanced Micro Devices are ramping production of AI-GPUs and introducing new chips, the bigger threat to Nvidia's bottom line is likely to come from within.
Nvidia's four-largest customers by net sales are all internally developing AI-GPUs for their data centers. Despite these chips being inferior to the computing capabilities of Nvidia's GPUs, they're going to be significantly cheaper and easier to access. Remember, Nvidia's chips are backlogged due to high demand. Internal AI-GPU development from the company's core customers likely means it'll lose out on valuable data center real estate in the years to come.
Nvidia's stock is currently priced for perfection in a world where things are rarely perfect. Instead of wagering on Nvidia's stock to head higher, I predict the following two hypergrowth stocks will eventually leave Wall Street's AI darling in the dust.
Image source: Pinterest.
Pinterest
The first high-octane growth stock that can run circles about Nvidia in the return column through 2030 is social media platform Pinterest(NYSE: PINS).
Even though ad-driven operating models are cyclical, which would expose Pinterest's stock and operating performance to downside during recessions, the economic cycle isn't linear. Whereas recessions are often resolved in less than 12 months, most economic expansions stick around for multiple years, if not a full decade, on rare occasions. Lengthy periods of growth tend to fuel ad spending.
In addition to time being squarely on its side, Pinterest's global monthly active user (MAU) count has been steadily climbing over the long run. Pinterest recorded its highest active user count (522 million) during the June-ended quarter. There aren't many social sites with over a half-billion MAUs, which acts as a dangling carrot for businesses looking to advertise. The more MAUs Pinterest has, the likelier it'll possess strong ad-pricing power.
What's arguably even more important than attracting active users has been Pinterest's ability to monetize the users it has. Following a challenging 2023, which was primarily bogged down by economic uncertainty, average revenue per user (ARPU) is strongly climbing, once again. The June-ended quarter saw global ARPU jump 8%, with the strongest growth in ARPU (16% on a year-over-year basis) coming from its most lucrative markets, the U.S. and Canada.
This is also a good time to mention that Pinterest has perfectly positioned its operating model to avoid app-developer headwinds, such as the ability to disable data tracking. The entire premise of Pinterest's platform is for its users to willingly and freely share the things, places, and services that interest them. This is invaluable information that can help businesses target Pinterest's users -- and it's another reason companies will pay a premium to advertise with Pinterest.
The final piece of the puzzle is Pinterest's pristine balance sheet. It has north of $2.7 billion in cash, cash equivalents, and marketable securities, with no debt. This gives it the financial flexibility to weather a recession, as well as deliver shareholder-friendly buybacks.
SentinelOne
The second hypergrowth stock that looks to be on track to handily outperform AI juggernaut Nvidia through 2030 is cybersecurity up-and-comer SentinelOne(NYSE: S).
The beautiful thing about cybersecurity is that it's steadily evolved into a basic necessity service. With businesses shifting their data, and that of their customers, online and into the cloud at an accelerated pace, they're increasingly leaning on third-party providers like SentinelOne to protect this information. Regardless of how well or poorly the global economy is performing, hackers don't take time off. This means demand for cybersecurity solutions is constant in pretty much any economic climate.
The company's Singularity platform, which is focused on endpoint, cloud, identity, and data protection services, is what makes the company tick. Singularity relies on AI and machine learning to become more effective at recognizing and responding to potential threats over time.
One factor undeniably working in the company's favor is its subscription-driven model. A subscription-focused cybersecurity model tends to keep clients loyal to the brand, as well as generates highly predictable sales and operating cash flow year after year. Annual recurring revenue (ARR) for the company's fiscal second quarter (ended July 31) surged 32%, while adjusted gross margin jumped three percentage points to a delectable 80%.
SentinelOne is also demonstrating a knack for landing bigger fish. The number of customers generating at least $100,000 in ARR jumped 24% to 1,233 from the prior-year period, while customers producing $1 million in ARR for the company grew at an even faster pace. Larger clients should lead to higher margins and steadier cash-flow generation.
Similar to Pinterest, SentinelOne is sitting on a hefty treasure chest. Inclusive of short- and long-term investments, it's sitting on more than $1.1 billion in cash, with no debt. It has more than enough capital to continue innovating, and has the ability to confidently navigate short-lived recessions.
The icing on the cake is that SentinelOne is expected to push into recurring profitability during the current fiscal year. Given Wall Street's forecast of 40% annualized earnings growth for the company through fiscal 2029, it has all the hallmarks of a no-brainer buy that can run circles around Nvidia.
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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 has a disclosure policy.
