AI, short for artificial intelligence, has caused quite a stir in the stock market scene in the past year. Stocks associated with AI technology have witnessed significant growth, prompting discussions about a potential bubble. However, many smart investors have shown considerable interest in this sector.
For growth-oriented investors, the allure of discovering the next big multi-bagger stock is undeniable. In the realm of AI, several stocks hold the potential to emerge as long-term winners. Drawing parallels to the success stories of software-as-a-service (SaaS) and cloud companies, AI stocks are on the cusp of what could be a multi-year bull run. Here, we delve into three AI stocks that have already displayed promising growth trajectories and explore why they might have even greater potential ahead.
The Powerhouse: Nvidia (NVDA)
Nvidia (NASDAQ:NVDA) stands as a behemoth in the AI landscape, catalyzing the ongoing AI revolution. Established in 1993 by current CEO Jensen Huang, Nvidia boasts a notable market presence and influence. With 46 analysts covering the stock, Nvidia’s price target range spans from $478.40 to $2,762.14, with an average target of $973.12, mirroring the stock’s current valuation.
Since the beginning of 2024, Nvidia’s stock has nearly doubled, propelling it to the position of the world’s third-largest company in terms of market capitalization. Notably, Nvidia recently unveiled its revolutionary Blackwell B200 GPU, touted as the most potent chip globally. Priced at approximately $40,000, these AI chips are in high demand, with orders already backlogged until 2025. The unparalleled processing speed and efficiency of these chips have generated significant buzz.
Despite its remarkable performance, Nvidia’s stock trades at a modest 39x forward earnings, highlighting its compelling valuation amidst its stellar price surges. This suggests that Nvidia might be currently perceived as undervalued, presenting an intriguing opportunity for investors.
The Challenger: Advanced Micro Devices (AMD)
Advanced Micro Devices (NASDAQ:AMD), an American semiconductor company founded in 1969, is spearheaded by CEO Dr. Lisa Su, who incidentally shares familial ties with Nvidia’s Huang. Despite its advanced age, AMD has often been viewed as the younger sibling of Nvidia. Initially gaining prominence with its CPUs and unseating Intel in market share, AMD has also made significant strides in the AI GPU arena, posing a formidable challenge to Nvidia.
Trading at approximately 53x forward earnings and nearly 13x sales, AMD commands a premium valuation compared to Nvidia. However, with a robust 3-year revenue compounded annual growth rate (CAGR) of 32%, AMD demonstrates a potential to justify its premium valuation in the future, suggesting promising growth prospects.
The Dark Horse: Soundhound AI (SOUN)
Soundhound AI (NASDAQ:SOUN), a relative newcomer in the AI sector, has attracted attention with Nvidia’s backing. Despite recent analyst downgrades, the average price target of $7.15 indicates untapped growth potential for this stock. Specializing in AI-driven voice products and services, akin to Amazon’s Alexa and Apple’s Siri, Soundhound boasts an elite clientele comprising brands like Mercedes-Benz, Netflix, Honda, and Mastercard.
Among the three stocks featured, Soundhound represents the riskiest investment option. However, this risk also comes with the prospect of significant returns, positioning Soundhound as a potential multi-bagger stock. Trading at 30x sales and competing against tech giants, Soundhound’s partnership with Nvidia and prestigious client roster hint at a promising future, making it a compelling AI stock to watch closely.