The artificial intelligence (AI) market has seen incredible growth in recent years, with companies like Nvidia leading the charge. However, while Nvidia has created several billionaires through its data center business, the company’s $3.3 trillion market valuation may limit its potential to create new millionaires in the future. For investors looking to capitalize on the growth of the AI market and potentially make significant gains, it may be worth looking at smaller companies with strong growth potential.
One such company is Arm Holdings (NASDAQ: ARM), a major player in the AI semiconductor industry. Arm’s chips are used in a wide range of devices, including premium smartphones, connected cars, cloud-based devices, and IoT devices. While Arm does not manufacture chips itself, it licenses its power-efficient designs to other chipmakers, including Qualcomm, Apple, and MediaTek, for royalties and fees. This business model has allowed Arm to maintain its position as a key player in the mobile chip industry, despite competition from x86 CPU makers like Intel and AMD.
Arm’s royalty and licensing revenue is primarily derived from the smartphone market, but the company is making efforts to diversify into other areas such as automotive and cloud computing. It has also been releasing high-royalty AI-oriented designs to improve its gross margins. Industry experts project that Arm’s sales will increase by 23% and its earnings per share will expand by 88% from fiscal 2024 to fiscal 2027. While the stock may be expensive at approximately 100 times next year’s earnings, its strong position in the AI semiconductor market could make it a potential multibagger over the coming decades.
Another AI-focused stock worth considering is SentinelOne (NYSE: S), a cybersecurity company that offers AI-powered solutions for threat detection and response. SentinelOne’s Singularity XDR platform aims to replace human analysts with AI-powered tools, providing faster and more accurate responses to cybersecurity threats. The company offers both on-premise and cloud-based services, with the ability to operate without internet access, giving it an edge over some cloud-native cybersecurity platforms.
While SentinelOne’s growth has slowed since its IPO three years ago, analysts predict that its revenue will expand by 27% from fiscal 2024 to fiscal 2027. The company’s stock is currently valued at 8 times next fiscal year’s sales, making it a potentially attractive investment opportunity. With an enterprise value of $7.3 billion, SentinelOne may also be a target for acquisition by a larger IT or cybersecurity company, further enhancing its potential for growth in the expanding AI and cybersecurity markets.
For investors interested in the potential of quantum computing, IonQ is a company to watch. Quantum computers operate using qubits, which can store zeros and ones simultaneously and potentially accelerate AI operations in the future. IonQ is a cloud-based quantum computing company that is working to address the challenges of existing quantum computing systems, such as their size, cost, energy consumption, and error rates.
IonQ’s patented “trapped ion” technology allows it to miniaturize quantum processing units (QPUs) and make them more cost-effective to produce. Analysts predict that IonQ’s revenue will grow by 87% to $145 million in 2026 as it scales up its operations and acquires more commercial customers. While the company is not yet profitable and its stock is valued at 28 times next year’s sales, the potential growth of the quantum computing sector could lead to significant gains for investors.
In conclusion, the AI market presents numerous investment opportunities for those looking to capitalize on the potential for growth in this exciting sector. While companies like Nvidia have been at the forefront of the AI revolution, smaller players with strong growth potential, such as Arm Holdings, SentinelOne, and IonQ, may offer investors the chance to make substantial gains in the coming years. By carefully considering the prospects of these AI-focused stocks and conducting thorough research, investors may position themselves for financial success in the rapidly expanding AI market.