There's no doubt that Nvidia is the stock everyone's talking about right now. And I won't say Nvidia doesn't deserve its flowers. However, investing is sometimes about moving against the crowd, looking for the gem everyone else is overlooking.
So instead of homing in on Nvidia like everyone else is, consider looking at some great growth stocks that are not only using artificial intelligence (AI) effectively, but have overlooked fundamentals and valuations that could set up investors for stellar long-term investment returns.
Here are two AI stocks you need to have on your radar:
1. The Trade Desk
Ok, it might be a stretch to say that ad-tech standout The Trade Desk(NASDAQ: TTD) is overlooked. After all, shares are up over 50% over the past year. But when was the last time your Uncle Bob asked you about the stock? The company doesn't get nearly the hype it deserves. Founder Jeff Green is a pioneer in digital advertising and has built a growing and highly profitable business with a straightforward proposition to advertisers:
Industry giants like Meta Platforms and Alphabet operate in closed ecosystems. In other words, you pay them for an ad. They will use their data, tell you how they believe the ad performed, and not give you much transparency about how they arrived at these conclusions. The Trade Desk offers advertisers complete insight so customers can feel good about spending money on the platform. Approximately 95% of customers stick around after working with The Trade Desk.
The Trade Desk uses AI to match advertisements to their ideal audience. It's an asset-light (and profitable) business model that keeps growing:
TTD Revenue (TTM) data by YCharts.
Long-term growth could come from a combination of brands diversifying away from the major ad platforms, plus a broader shift of advertising budgets from print and broadcast media to online. Analysts believe the company's earnings will grow by an average of 23% annually over the next three to five years. That's solid growth for today's forward P/E ratio of 56.
The Trade Desk is a potential blue-chip technology stock in the making.
2. SentinelOne
Cybersecurity is at the epicenter of the modern economy. It doesn't take long to find news of a significant breach. Healthcare giant UnitedHealth Group was just recently hacked, for example, and is trying to control the fallout from that. Incidents like this will probably ensure security remains a high priority for corporate budgets for years to come. Why not put your money on SentinelOne(NYSE: S), arguably one of the most innovative stocks in the space?
SentinelOne started in endpoint security, securing devices connected to a network. However, since then the company has expanded to other areas like cloud and identity security.
SentinelOne's tech works like this: Artificial intelligence organizes everything your device does into trends and stories. When something looks out of line -- boom, it seizes it and addresses the threat if necessary. It's autonomous and proactive protection.
The company's product has gotten numerous accolades from third-party tech evaluators like Gartner, and SentinelOne is rapidly growing its business, too:
S Revenue (TTM) data by YCharts.
SentinelOne is still early in its business life. The company is only doing about $573 million in annual revenue and isn't profitable yet. However, that's all changing fast. Analysts believe revenue will hit $1 billion in two years, while free cash flow is quickly heading toward positive territory. The business has a tremendous $800 million cash hoard to keep investing in growth and zero debt.
If you value the stock on sales, its price-to-sales ratio (P/S) of 10 is nearly half that of its arch-rival CrowdStrike Holdings. Since CrowdStrike is profitable, one could argue that SentinelOne could close that gap in the stocks' valuations once it follows suit. There's much to like between that potential catalyst and a healthy growth outlook.
Should you invest $1,000 in The Trade Desk right now?
Before you buy stock in The Trade Desk, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and The Trade Desk wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of February 26, 2024
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Justin Pope has positions in SentinelOne. The Motley Fool has positions in and recommends Alphabet, CrowdStrike, Meta Platforms, Nvidia, and The Trade Desk. The Motley Fool recommends Gartner and UnitedHealth Group. The Motley Fool has a disclosure policy.
