Forget SoundHound AI: 2 artificial intelligence (AI) stocks worth buying now and holding for the long term

Since artificial intelligence (AI) exploded in popularity early last year, investors have been attracted by the potential for parabolic gains in AI stocks. Sound Hound Artificial Intelligence For example, since mid-February there have been reports that Nvidia (Nasdaq: NVDA) After taking a stake in the company, its stock price soared, soaring 295% in the following weeks.

Investors should be careful, however, as following the crowd can be costly. SoundHound AI has fallen out of favor with at least one previously bullish analyst and is the target of a bearish report that raises some legitimate concerns. Additionally, SoundHound AI sells for 18 times next year’s sales and, despite impressive growth, has yet to generate profits.

That’s not to say this investment won’t end up being a winner, but given the risky nature of this company, I recommend investors forget about SoundHound AI stock and focus on these two artificial intelligence leaders instead.

A man stares intently at a stock chart on a tablet.

Image source: Getty Images.


When it comes to artificial intelligence, there’s a compelling argument that no other company is better positioned to ride the AI ​​wave than Nvidia itself. The company adapted its technology to accelerate artificial intelligence models years ago and is the undisputed leader in driving artificial intelligence. machine learning According to New Street Research estimates, algorithms account for 95% of the market.

So Nvidia already had a lot of experience when developing it. generative artificial intelligence The company came to prominence early last year. The company has modified its processors to provide the computing power needed to run artificial intelligence systems, and sales are booming.

In the fourth quarter of fiscal 2024 (ended January 28), Nvidia achieved record revenue, soaring 265% year-on-year to $22.1 billion, driving adjusted earnings per share (EPS) to surge 486% to $5.16. This marks Nvidia’s third consecutive quarter of triple-digit year-over-year growth — and it likely won’t be the last. Management forecasts revenue for the current quarter will reach a record $24 billion, a year-over-year increase of 234%.

There are other reasons to believe Nvidia’s rapid growth will continue. A lot of AI processing and workloads happen in the cloud, and Nvidia has an advantage here as well. The company’s market share for graphics processing units (GPUs) used in the data center segment is estimated at 95%, CFRA Equity analyst Angelo Zino said.

The construction of data centers with artificial intelligence processing capabilities has begun. Chief Executive Jensen Huang said spending to bring data centers up to standard will double in the next few years to $2 trillion.

Nvidia trades at 38 times forward earnings, which isn’t cheap, but it earns a premium thanks to its triple-digit growth.

Instead of buying Nvidia stock, why not just buy Nvidia itself?

2. Ultra-microcomputer

Another company already benefiting from accelerated adoption of generative AI is super microcomputer (NASDAQ: SMCI)Often called Supermicro. The company also plays a major role in artificial intelligence processing, developing servers powerful enough to handle artificial intelligence workloads.

The company partners with Nvidia to Advanced Micro Devicesand Inteletc. to ensure that their servers are optimized to work with the latest and most powerful processors. In addition, these collaborations ensure Supermicro has a stable supply of AI-centric chips to power its servers.

In the second quarter of fiscal 2024 (as of December 31, 2023), Supermicro’s net sales were US$3.66 billion, an annual increase of 103%, driving adjusted earnings per share of US$5.59, an increase of 71%. Management made clear that its record revenue was the result of strong demand for rack-scale systems for artificial intelligence.

Some believe Supermicro is taking share from competitors.Barclays analyst George Wang believes that Supermicro “has a 7% market share globally, which means that it may further expand its share in the future.” He went on to say that Supermicro is stealing share from competitors. Dell Technologies and Hewlett Packard Enterprise.

In addition, the data center upgrade cycle mentioned above also benefits AMD. Bernstein analyst Toni Sacconaghi calculated that the market for artificial intelligence servers will grow 75% annually over the next three years, calling the resulting expansion “unprecedented.”

Supermicro’s stock price is soaring, up 842% over the past year (as of this writing), but it’s still surprisingly cheap at less than 3 times next year’s sales.

Given its cheap valuation and profit history, Supermicro is a better artificial intelligence stock than SoundHound AI.

Should you invest $1,000 in Nvidia right now?

Before buying Nvidia stock, consider the following factors:

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Danny Weiner The Motley Fool holds positions in Nvidia and Super Micro Computer. The Motley Fool holds positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2023 Intel $57.50 call option, long January 2025 Intel $45 call option, and short May 2024 Intel $47 call option. Motley Fool has disclosure policy.

Forget SoundHound AI: 2 artificial intelligence (AI) stocks worth buying now and holding for the long term Originally published by The Motley Fool

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