Many hypergrowth stocks fizzled out over the past two years as rising rates compressed their valuations and drove investors toward more conservative investments. However, that sell-off has also created some lucrative buying opportunities.
If you're a patient investor who can stomach the near-term volatility, consider buying these two out-of-favor growth stocks -- CleanSpark (NASDAQ: CLSK) and SoundHound AI(NASDAQ: SOUN) -- and hold them for at least the next decade.
Image source: Getty Images.
1.
CleanSpark: The clean Bitcoin miner
CleanSpark is the third-largest Bitcoin miner in the U.S. in terms of annual revenue, after Marathon Digital and Riot Platforms. But unlike Marathon and Riot, which both rely heavily on coal-fired and fossil fuel plants, CleanSpark uses low-carbon energy to mine Bitcoin.
CleanSpark previously developed modular microgrids -- which funnel renewable energy sources, like solar and wind power, into storage, backup generators, and load management services -- before it transformed into a Bitcoin miner. In 2021, the company acquired the Bitcoin miner ATL Data Centers, upgraded operations with its own microgrids, and continued to expand by buying and transforming more Bitcoin mining facilities.
From fiscal 2021 to fiscal 2023 (which ended last September), CleanSpark's revenue increased at a compound annual growth rate (CAGR) of 85%. Its total number of annually mined Bitcoins rose from 892 in fiscal 2021 to 6,903 in fiscal 2023, while its hash rate, which gauges the efficiency of its mining operations, rose from one exahash per second (EH/s) to 10 EH/s. That closely watched figure more than doubled to 20.4 EH/s at the end of June 2024.
Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) also turned positive in fiscal 2023. From fiscal 2023 to fiscal 2026, analysts expect the company's revenue to grow at a CAGR of 68% as its adjusted EBITDA increases at a CAGR of 100% -- even as the recent Bitcoin halving drives up its mining costs. Investors should take those estimates with a grain of salt since they're pinned to Bitcoin's volatile price, but its stock still looks reasonably valued at 9 times this year's sales.
2. SoundHound AI: An AI-driven audio recognition company
SoundHound AI's namesake app helps people identify songs by playing a brief audio clip or simply humming a few bars. But it actually generates most of its revenue from its Houndify developer platform, which enables companies to create their own customized artificial intelligence (AI)-powered audio recognition tools.
Houndify has been used to create voice recognition services for drive-thru machines at fast-food restaurants like Church's Chicken, Vizio's smart TVs, and Hyundai's automotive systems. It's a popular option for companies that don't want to feed their customer data to a bigger tech company like Microsoft or Alphabet's Google.
SoundHound went public by merging with a special purpose acquisition company (SPAC) two years ago, but its stock tumbled after broadly missing its own pre-merger estimates. Yet it's still growing at an impressive rate.
The company's revenue rose 47% in both 2022 and 2023, and analysts expect its revenue to grow at a CAGR of 50% from 2023 to 2025. Its adjusted EBITDA is still negative, but it's narrowing those losses as it scales up its business. SoundHound AI recently acquired the restaurant solutions provider SYNQ3, is partnering with its investor Nvidia to roll out services in more vehicles, and has been working with Perplexity, a developer of large language models (LLMs), to bolster its generative AI capabilities.
SoundHound's stock isn't cheap at nearly 30 times this year's sales, but it could have a lot of room to run over the next decade as more companies upgrade their AI and voice recognition capabilities.
Should you invest $1,000 in SoundHound AI right now?
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Bitcoin, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
