Finance
3 top AI stocks poised for a bull run
Artificial intelligence (AI) has the potential to be one of the greatest revolutionary technological developments the world has ever seen. Companies are just beginning to embrace the technology and what it can do. However, the first results are promising, allowing organizations to become more efficient and better serve their customers.
But make no mistake, artificial intelligence is still in its infancy and there are many opportunities for investors to take advantage of companies leading the way in AI. Let’s take a look at some of the best stocks to play on the AI running of the bulls.
Nvidia
No company is currently benefiting more from AI than Nvidia (NASDAQ: NVDA). The maker of graphics processing units (GPUs) has become the backbone of the infrastructure needed to power AI applications in data centers. GPU chips can perform engineering calculations faster and with less energy than central processing units (CPUs), making them ideal for use in AI training and inference.
Nvidia’s GPUs have become the gold standard in the industry thanks to the CUDA software platform, which allows the chips to be programmed directly, saving customers time and money.
Nvidia will remain the go-to company for building out the more powerful data centers needed to power AI applications. Meanwhile, Nvidia isn’t a one-trick pony, and its networking business also benefits greatly from AI.
Nvidia has experienced incredible growth, including more than tripling its revenue during its most recent quarter. Still, the stock is attractively valued at a price-to-earnings ratio of just 36, which portends a bull run as the company grows and investors drive up the share price.
Amazon
When it comes to AI, Amazon (NASDAQ: AMZN) It may not be the first stock that comes to mind. However, the e-commerce giant has invested heavily in the technology.
The company owns the largest cloud company, Amazon Web Services or AWS, which is benefiting from the proliferation of AI. It has also developed two chips, Trainium and Inferentia, that can be used specifically for AI applications.
On the software side, the company has developed platforms to help customers build their own AI models and applications. The SageMaker platform helps customers build, train, and deploy machine learning models, while the Bedrock platform provides customers with high-quality models from Amazon and other leading AI companies through a single API to help them build AI applications.
Amazon has also developed its own AI-powered assistant for software developers, Amazon Q. The AI assistant can write, test, and debug code. It can also answer questions about company policies, products, and other topics.
Amazon has shown in the past that it is willing to spend a lot to gain a lot in the end, and AI appears to be no exception. The stock trades at a forward price-to-earnings ratio of around 41 and has room to run given the AI growth opportunities ahead of the company.
SoundHound AI
Shares of SoundHound AI (NASDAQ: SOUND) skyrocketed earlier this year following news that Nvidia had made an investment in the AI-powered voice assistant company. Recently, however, shares have fallen back to more reasonable levels.
Soundhound’s technology allows voice assistants and people to interact more naturally, allowing users to ask more complex questions and get better answers. The company has made great strides in the automotive industry and is also making good progress in the restaurant sector. However, the technology’s applications should extend far beyond these two vertical sectors.
The company has an attractive recurring revenue business model, where it receives royalties based on volume, usage or the life of the product. For applications that do not involve a product, such as restaurant offerings, a subscription model is used.
SoundHound is still relatively small, generating just $46 million in revenue last year. However, it has a large booking backlog of $661 million, which if met, will generate revenue for years to come. The weighted average duration of the contracts is approximately six and a half years, with the backend generating more revenue. Much of the company’s backlog comes from its relationships with about two dozen automotive brands and the fact that the technology is built into new models of their vehicles.
SoundHound stock trades at more than 21 times forward sales and isn’t cheap. However, its valuation has fallen sharply in recent months, and the company has a lot of growth potential if it can continue to apply its technology to more products. For example, introducing smartphones would be a game changer for the company and its shares.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has and recommends positions in Amazon and Nvidia. The Motley Fool has one disclosure policy.
3 top AI stocks poised for a bull run was originally published by The Motley Fool
