Artificial intelligence (AI) stocks have soared in value this year. Many of them are tech giants, led by none other than Nvidia (NASDAQ: NVDA). The semiconductor maker has seen its stock price rise 186% since the beginning of the year.
However, there are also smaller potential opportunities within this niche that should be considered. Among them is voice recognition specialist SoundHound AI (NASDAQ: SOUN), which is focused on an area with significant growth potential, so it’s not too late for investors.
In fact, this growth story is probably just beginning.
Anyone currently investing in the AI space should start with Nvidia. The company’s market capitalization has increased 186% this year, with about 40 percentage points of the increase occurring after a 10-for-1 stock split on June 7.
There’s a reason NVIDIA is being talked about as the best-performing AI stock, even though Nvidia doesn’t necessarily sell AI software itself. The company is a leading supplier to the AI industry. But we do more than just sell basic parts and services.
Without Nvidia, the entire AI industry would not exist as it does today. That’s because the company’s graphics processing units (GPUs) — specialized chips essential for simultaneously processing the large amounts of data needed to train and run complex AI models — are superior to those offered by competitors. This is because
If you need proof of Nvidia’s superior technology, know that various estimates peg Nvidia at between 70% and 95% market share for AI chips. Additionally, the company’s 75% gross profit margin suggests clear pricing power compared to competitors such as Advanced Micro Devices and Intel, which have gross profit margins of approximately 40% to 50%.
The growth in AI spending is just beginning. According to data compiled by Statista, spending across the industry will likely increase by an average of 30% per year over the next decade. Competition is fierce in the AI chip space, and Nvidia is unlikely to maintain its dominant market share forever.
But if you want to bet on AI, there are few better bets than Nvidia stock. Just know that the stock trades at a whopping 35x sales, so you’ll be paying a premium for this perk. If you want to bet on AI stocks before they explode in value, the next company on this list might be a better choice.
If you’re looking to add maximum growth potential to your portfolio by buying high-value AI stocks, look no further than SoundHound AI. There are some obvious risks to this investment, but if the company can reach its full potential, it could yield significant returns.
story continues
Like Nvidia, SoundHound already trades at a premium valuation of about 25 times sales. The big difference is in market capitalization. SoundHound’s $1.9 billion versus Nvidia’s $3.3 trillion. It’s easy to see that SoundHound has a greater chance of increasing in value by 4x over time than Nvidia, given its current much smaller size. This is especially true when you consider SoundHound’s niche: voice AI.
The global speech recognition market is estimated to be worth approximately $15 billion this year. But between now and 2032, its value is expected to increase by more than 20% annually to $85 billion. SoundHound is off to a great start, with an array of global brands on board as customers and a revenue base that has grown over 150% in the past 12 months.
However, the company’s total revenue remains below $60 million annually. Compare this to a watchable market that could be worth $85 billion by 2032, and it’s not hard to see how the company’s sales and valuation will rise over time.
SoundHound is a great choice for AI investors looking for stocks with the most growth potential, but there are some risks to be aware of. The company remains in the red, with an R&D budget of only about $56 million a year. Meanwhile, big tech companies, many of which are developing their own voice AI platforms, are investing billions of dollars to enhance AI technology.
SoundHound may have a hard time competing with these giants as the industry ramps up spending on niche areas. These risks are one reason SoundHound’s market value is only $1.9 billion, despite its position in one of the hottest industries of this century.
But if you’re willing to take on additional risk for additional rewards, few AI stocks offer such great growth potential.
Before buying Nvidia stock, consider the following:
The Motley Fool Stock Advisor team of analysts identified the 10 best stocks for investors to buy right now…and Nvidia wasn’t one of them. These 10 stocks have the potential to generate impressive returns over the next few years.
Consider when Nvidia created this list on April 15, 2005… If you invested $1,000 at the time of recommendation, you would have earned $880,670. *
Stock Advisor provides investors with an easy-to-understand blueprint for success, including guidance on portfolio construction, regular updates from analysts, and two new stocks each month. Stock Advisor services have increased S&P 500 returns more than 4x since 2002*.
See 10 stocks »
*Stock Advisor will return as of October 21, 2024
Ryan Vanzo has no position in any stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and recommends the following options: November 2024 $24 short calls on Intel. The Motley Fool has a disclosure policy.
2 Game-Changer Artificial Intelligence (AI) Stocks to Buy Right Now originally published by The Motley Fool.
