Nvidia (NVDA 2.13%) has been one of the best-performing stocks over the past five years, creating a lot of millionaires in the process. However, with those strong returns in its rear-view mirror, investors today might be better served to look instead for the next set of potential huge winners.
These three smaller tech companies have plenty of potential to soar in the years ahead.
1. SoundHound AI
NASDAQ: SOUN
Key Data Points
SoundHound AI (SOUN 2.81%) first showed up on most investors' radar after it was revealed that Nvidia had invested in it. The company employs an artificial intelligence (AI) voice platform that uses speech-to-meaning technology and deep-meaning-understanding technology to process speech in real time, understand the speaker's intent, and respond to complex questions, statements, and requests.
The company initially found some success in the automotive industry -- several automakers now use its technology in the interfaces for their vehicles' voice assistants. SoundHound has since gained momentum in the restaurant sector, both with restaurant operators and restaurant-focused fintech companies such as Toast and Olo.
More recently, SoundHound acquired Amelia, a conversational and generative AI platform used for customer service, employee onboarding, and back-office tasks. The deal will help SoundHound move into other industries such as healthcare, retail finance, and insurance, and sets the company up for a lot of cross-selling and upselling opportunities.
While SoundHound is a more speculative investment, if it can become the standard in AI voice technology, it could be a millionaire-maker stock.
Image source: Getty Images.
2. SentinelOne
NYSE: S
Key Data Points
Cybersecurity company SentinelOne (S 6.16%) specializes in endpoint security, which is the protection of a network and its endpoints, such as smartphones and computers. Through its Singularity Platform, the company uses AI agents not only to monitor threats, but also to predict and eliminate them. In addition, when cyberattacks do occur, SentinelOne says it can "rewind" the systems it protects back to how they stood beforehand, sparing its clients the need to manually perform time-consuming incident cleanups.
SentinelOne is well positioned to take advantage of the crippling global IT outage that CrowdStrike caused with its flawed software update earlier this year. Given its significantly smaller size, SentinelOne won't need to lure a large amount of business away from the industry heavyweight to be a big winner from the incident.
Meanwhile, it just struck a multiyear deal with enterprise personal computer (PC) vendor Lenovo to provide endpoint security across all its new PCs, and to offer established owners of Lenovo's hardware the option to upgrade their security to the Singularity Platform. Lenovo will also use the Singularity Platform to build a new managed detection and response (MDR) service.
The company is already growing its revenues at a brisk pace, including 33% year over year in Q2, and deals like the one with Lenovo could accelerate its growth even more. Trading at a forward price-to-sales ratio of 7.5 based on next year's analyst estimates, the stock is a bargain compared to its larger peers, giving it the potential to be a millionaire-maker.
S PS Ratio (Forward 1y) data by YCharts.
3. AppLovin
NASDAQ: APP
Key Data Points
Don't let the silly name fool you -- AppLovin (APP 2.56%) has been one of the biggest beneficiaries of the AI revolution outside of Nvidia. Since it debuted its Axon 2 AI-based advertising solution, the company's software platform revenue has soared.
AppLovin has traditionally been focused on mobile gaming companies, which use its solution to attract new customers and monetize their games. Since the launch of Axon 2, mobile app companies have flocked to its solution, seemingly at the expense of rival Unity Software, which has seen its ad business (called Grow Solutions) stumble as AppLovin's revenue has soared. In Q2, AppLovin's software platform revenue rose by 75% while Unity's fell by 9%.
Trading at a forward P/E ratio of 24.5 based on next year's analyst estimates and a price/earnings-to-growth (PEG) ratio of 0.5, the stock is not expensive. Typically, a stock with a PEG under 1 is considered undervalued, so by that metric, AppLovin is practically in the bargain bin.
APP PE Ratio (Forward 1y) data by YCharts.
However, the company's millionaire-maker potential will rest on its ability to extend its solution beyond the mobile gaming market. If it can do that, its rapid revenue growth can continue, in which case, the sky is the limit for the stock.
