The "Magnificent Seven" stocks, a group of Apple, Amazon, Nvidia, Meta Platforms, Microsoft, Alphabet, and Tesla, get most of the AI hype. Their stocks have collectively smashed the broader market for the past 18 months.
However, many of these names have floated higher to the point that they may not be the best buys on the market today. So, instead, consider broadening your horizons. There are AI stocks beyond the Magnificent Seven.
There's a good chance you can buy Super Micro Computer (SMCI 8.89%) and Duolingo (DUOL 3.64%) today and enjoy great long-term returns.
1. Super Micro Computer
Shares of Super Micro Computer have gone parabolic, soaring 850% over the past year. I'll admit, it feels odd saying that shares are still buyable, but I cannot deny the data. First things first: Why is Super Micro Computer up so much? The company has become an important role player in building AI data centers. The company sells turnkey modular server systems. Companies that don't want to waste the time, effort, or money to figure out how to build their systems are going to Super Micro.
The company's seeing growth take off as a result. Revenue grew 103% year over year in its most recent quarter and 73% quarter over quarter. Management expects revenue growth to accelerate to over 200% year over year next quarter. Triple-digit growth will move stock, and the industry is poised to continue growing. According to Grand View Research, the world's data center footprint could double by 2030 to support AI's growth.
Analysts believe Super Micro Computer will earn nearly $22 per share this year, pricing shares at a forward price-to-earnings ratio (P/E) of 49. Meanwhile, earnings growth is expected to average 55% annually over the next three to five years. A forward P/E ratio of 49 is reasonable for a business growing earnings at a 55% clip. At a PEG ratio under one, that's an outright bargain if the company lives up to expectations.
2. Duolingo
Duolingo has been a highflier over the past year. Shares are up an impressive 70%. However, I don't think the company or the stock is getting the recognition it deserves. Duolingo is an educational app that gamifies content to make learning engaging but effective. Its core content is languages, but it's shifting into new content categories like math. Students and users seem to love the app. The company's monthly active user base grew 46% year over year to 88.4 million, and daily users grew 65% to 26.9 million.
The app is free, so Duolingo makes money by selling premium subscriptions, testing, and data. Duolingo's growth is impressively consistent. Fourth-quarter revenue was up 45% year over year, bringing full-year 2023 revenue to $531 million, a 44% increase over the prior year. That 1% difference in Q4 growth means revenue growth is accelerating. Duolingo's bookings were even more impressive, growing 51% year over year in Q4 compared to 45% for the full year.
Management states that over 2 billion people worldwide are learning new languages, so the long-term market opportunity is tremendous. The cool thing about a product like Duolingo is that its digital footprint can quickly spread because the only barrier to using Duolingo is not having a smartphone to play it on. Duolingo just turned generally accepted accounting principles (GAAP) profitable, so investors should look for rapid earnings growth moving forward. A good company and product can duplicate a winning formula for many years. Duolingo seems to have found its magic, which means the future could be bright for the company and its investors.
