The explosive growth of the artificial intelligence (AI) market drove many tech stocks to record highs over the past few years. Two of those most obvious plays on that secular trend were Nvidia (NASDAQ: NVDA), the world's largest supplier of AI accelerator chips, and Microsoft (NASDAQ: MSFT), which owns a big stake in OpenAI.
Nvidia and Microsoft are still the sector's bellwethers, but investors shouldn't overlook the other hidden gems. Let's check out three of those promising plays: AMD (AMD -0.15%), SentinelOne (S 2.29%), and Innodata (INOD -4.59%).
1. AMD
AMD, the world's second-largest producer of x86 CPUs and discrete GPUs, doesn't get as much attention as Nvidia as an AI chipmaker. But over the past few years, AMD ramped up its production of Instinct GPUs for data centers.
Its newest MI300 Instinct chips, which were built on Taiwan Semiconductor Manufacturing's 5nm and 6nm nodes, offer comparable performance to Nvidia's H100 GPUs for a fraction of the price. That lower price tag makes it a compelling alternative for data center customers that are struggling with Nvidia's high prices and supply constraints.
AMD's data center chip sales (which include its Epyc CPUs and Instinct GPUs) only rose 7% in 2023, but surged 80% year over year in the first quarter of 2024 and soared 115% in the second quarter. Its data center chip sales accounted for 48% of its revenue in the second quarter -- up from just 24% a year earlier.
That rapid expansion, which mirrors the breakneck growth of Nvidia's data center business, offset its slower sales of PC gaming GPUs, gaming console APUs, and embedded chips. It also complemented its robust sales of Ryzen CPUs for PCs.
From 2023 to 2026, analysts expect AMD's revenue to grow at a compound annual growth rate (CAGR) of 20% as its earnings per share (EPS) rises at a CAGR of 105%. Its stock isn't cheap at 42 times its forward adjusted earnings, but it could soar a lot higher as its data center business expands and becomes a much larger percentage of its business.
2. SentinelOne
SentinelOne is a cybersecurity company that aims to replace all human analysts with AI-powered algorithms on its Singularity extended detection and response (XDR) platform. It provides its services through a mix of on-site appliances and cloud-based services.
SentinelOne's revenue more than doubled in fiscal 2022 and fiscal 2023 (which ended in January 2023), but only grew 47% in fiscal 2024. It expects that slowdown, which it attributes to the tough macro headwinds, to continue with 29% to 31% growth in fiscal 2025. That deceleration -- along with its lack of generally accepted accounting principles (GAAP) and non-GAAP (adjusted) profits -- drove away the bulls as interest rates rose. Its stock now trades 34% below its IPO price and 70% below its all-time high.
But after that decline, SentinelOne's stock looks historically cheap at less than 9 times this year's sales. Analysts expect its revenue to grow at a CAGR of 27% from fiscal 2024 to fiscal 2027 as it expands its AI-powered niche of the cybersecurity sector. They also expect it to narrow its net losses as economies of scale kick in.
CrowdStrike (NASDAQ: CRWD), the cloud-native cybersecurity leader that competes against SentinelOne in the XDR market, notably recently found itself blamed for a global IT outage on Windows machines with a flawed software update. That massive blunder could drive more companies to SentinelOne and other AI-powered cybersecurity platforms.
3. Innodata
Innodata went public back in 1993, and it was considered a slow-growth IT services and enterprise software provider over the next 25 years. But from 2019 to 2023, Innodata's revenue rose at a CAGR of 12%, and analysts expect it to continue growing at a CAGR of 33% from 2023 to 2026. It expects "at least" 40% organic revenue growth in 2024.
This dusty old company -- which provides business process, technology, and consulting services along with its digital information management software -- became an exciting growth stock again as it rolled out new generative AI services. By the beginning of 2024, it had signed master service agreements with five of the "Magnificent Seven" companies. It expects to significantly grow its revenue from three of those tech giants this year.
Innodata racked up GAAP losses over the past three years, but its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) turned positive in 2023 -- and analysts expect that figure to grow at a three-year CAGR of 64% through 2026. Innodata's stock has already rallied 1,450% over the past five years as it became a growth play again, but it still doesn't look too expensive at 5 times this year's sales. Therefore, this oft-overlooked tech stock could still have plenty of room to run as the generative AI market expands.
Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, CrowdStrike, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
