These stocks have tripled in the past 12 months, but have yet to reach their peak.
Artificial intelligence (AI) has taken the world by storm over the last year. The demand for generative AI, which can create intelligent responses, images, and videos from simple text instructions, is exploding and is expected to grow exponentially in the coming years.
Some of the most widely used generative AI applications include OpenAI’s ChatGPT, Google’s Gemini, and Microsoft Copilot. ChatGPT has more than 200 million weekly active users, and according to Statista, the overall generative AI market could grow nearly 10 times to $356 billion by 2030.
Here are two stocks that could benefit from this opportunity.
1. Soundhound AI
One area where generative AI is in high demand is conversational voice assistants, powered by Soundhound AI. (Seoun -2.51%) He is emerging as a leader. The company expects strong demand from automakers for its conversational generative AI assistant, Soundhound Chat AI. However, the company is looking to expand into more industries.
SoundHound also has a strong presence in the restaurant industry. Rather than the other way around, more restaurants are reaching out to Soundhound about its products, which is a great validation of the company’s technology. Over the past three years, Soundhound’s quarterly revenue has more than doubled. Second quarter revenue increased 54% year-over-year to $13.5 million.
Soundhound just acquired Amelia, a leading AI software company, for $80 million. The deal will allow SoundHound to expand into more industries, including healthcare, financial services, smart devices and retail.
While the stock price has soared over the past year, the main negative factor continues to be uncertainty about Soundhound’s profitability. Revenue has been growing rapidly, but profits have not yet been reported. The company’s adjusted net loss was $14.8 million last quarter.
However, Soundhound spends a lot of money on marketing, which reduces its net income. The company spent 42% of its revenue on marketing last quarter, but that percentage has been declining over time, which can be attributed to increased awareness of its voice AI capabilities. In the future, marketing expenses may become a source of revenue.
For these reasons, the company’s stock is still worth buying after rising 189% over the last year. Investors are getting into small-cap AI stocks that could soar along with the generative AI market over the next decade.
2. Nvidia
Nvidia (NVDA 0.03%) is the preferred chip supplier for people who play video games for years. But in recent years, Nvidia’s graphics processing units (GPUs) have been used to mine cryptocurrencies, run cloud services in data centers, and train AI models. This has allowed Nvidia to turn its dominance in gaming GPUs into a similar lead in the AI chip market.
Nvidia GPUs are used by all major cloud service providers. The company is currently working on AI initiatives with some of the world’s largest companies. The company’s revenue soared last year, increasing 122% year over year quarter over quarter. A key driver of this demand is increased investment in the development of AI-powered chatbots and generative AI co-pilot assistants.
One risk for Nvidia is increased competition from custom AI chip makers. However, NVIDIA’s steady innovation should allow it to maintain its lead and maintain its momentum. Last quarter, we released Nvidia Inference Microservices (NIM). It is used by over 150 companies to accelerate the development of generative AI applications. Nvidia also announced a new AI foundry service using Meta Platforms’ Llama family of large-scale language models. This will allow nations and companies to use their own data to create custom models and AI applications.
While Nvidia is well-positioned for growth on the hardware side with GPUs, software is an overlooked opportunity. For example, AT&T reduced costs by 70% by using Nvidia NIM to transcribe and classify generated AI calls. Nvidia expects revenue from software and support services to reach an annual run rate of nearly $2 billion by the end of the year.
Despite the nearly 200% increase over last year, the company’s stock trades at a forward price-to-earnings ratio of 30 times next year’s earnings, which is not too expensive for a leader in AI chips. While investors shouldn’t expect the stock to rise as quickly as it has in the past few years, Nvidia investors can expect the stock to continue hitting new highs over the long term.
Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. John Ballard has held positions at Meta Platforms, Nvidia, and SoundHound AI. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
