Artificial intelligence (AI) stocks are surging in value again this year. Many of them are giants of the tech world, led by none other than Nvidia(NASDAQ: NVDA). The chipmaker has seen its stock price soar by 186% since the year began.
But there are smaller potential opportunities in this niche to consider, too. Among them is voice recognition specialist SoundHound AI(NASDAQ: SOUN), which focuses on an area that should see substantial growth -- and so it's not too late for investors.
In fact, these growth stories are likely just getting started.
Don't ignore this critical AI supplier
Anyone investing in the AI space right now has to begin with Nvidia. Its market capitalization is up 186% this year, with about 40 percentage points of the gain occurring after its 10-for-1 stock split on June 7.
There's a reason why everyone is talking about Nvidia as the best-performing AI stock even though it doesn't necessarily peddle AI software itself. The company is a key supplier to the AI industry. But it's not just selling basic parts and services.
Without Nvidia, the AI industry as a whole couldn't exist in the way it does today. That's because the company's graphics processing units (GPUs) -- specialized chips that are critical to simultaneously processing the large amounts of data necessary in training and running complex AI models -- are superior to what the competition offers.
If you need proof of Nvidia's superior technology, just know that various estimates peg Nvidia with a 70% to 95% market share for AI chips. Plus, its gross margins of 75% suggest clear pricing power versus competitors like Advanced Micro Devices and Intel, which boast gross margins of around 40% to 50%.
AI spending growth has just begun. Data compiled by Statista suggests that industrywide spending should increase by an average of 30% per year for perhaps the next decade. Competition in the AI chip space will emerge, and it's unlikely that Nvidia will retain its dominant market share in perpetuity.
But if you want to bet on AI, there are few better ways to do so than with Nvidia stock. Just know that you'll pay a premium for the privilege, with the stock trading at an astounding 35 times sales. If you want to bet on an AI stock before it explodes in value, the next company on this list may be a better fit.
Want to maximize your growth potential?
If you're looking to add the most growth potential to your portfolio possible by buying high-upside AI stocks, look no further than SoundHound AI. There are some clear risks to this investment, but if the company reaches its potential, the upside should be significant.
Like Nvidia, SoundHound already trades at a premium valuation -- roughly 25 times sales. The big difference is in their market caps -- $1.9 billion for SoundHound versus $3.3 trillion for Nvidia. Given its far smaller current size, it's easy to see that SoundHound has greater potential to quadruple in value from here than Nvidia. That's especially true when you consider SoundHound's niche: voice AI.
This year, the global speech and voice recognition market is estimated to be worth around $15 billion. But between now and 2032, its value is expected to grow by more than 20% per year to $85 billion. SoundHound has an impressive start, with a suite of global brands signed up as customers, and a revenue base that has grown by more than 150% over the past 12 months.
Yet, the company's total revenue is still below $60 million per year. Compare that to an addressable market that could be worth $85 billion by 2032 and it's not hard to see how the company's sales and valuation could soar over the long term.
While SoundHound is a great pick for AI investors looking for stocks with maximum growth potential, there are some risks to be aware of, too. The company is still losing money and sports a research and development budget of only around $56 million annually. The big tech giants, meanwhile -- many of which are developing their own voice AI platforms -- are investing billions into boosting their AI chops.
It's possible that SoundHound will struggle to compete with these giants as industry spending on its niche begins to take off. These risks are partially why SoundHound has been assigned a market value of just $1.9 billion despite its position in one of the hottest industries this century.
But if you're willing to take on some extra risk for extra reward, few AI stocks offer you so much growth potential.
Should you invest $1,000 in Nvidia right now?
Before you buy stock in Nvidia, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $880,670!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of October 21, 2024
Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
