It’s hard not to get caught up in the hype surrounding artificial intelligence (AI) when analysts are predicting so much growth. Grand View Research predicts the AI market will be worth $1.8 billion by 2030. trillionup from about $279 billion this year. With that kind of growth, investors who don’t own AI stocks may feel like they’re missing out.
But buying shares of a chip maker Nvidia or other AI stocks that have already generated huge returns may not be as attractive given their high valuations. Buying at these high levels can limit the profits you make on a stock, both in the short and long term.
Another option is to consider AI stocks that haven’t done so well lately. You might be taking on more risk, but you could still make some gains if they eventually recover. Snowflake (NYSE: SNOW), Supermicrocomputer (NASDAQ: SMCI)And SoundHound AI (NASDAQ: SOUND) All AI stocks are down more than 50% from their 52-week highs. Below, I’ve ranked them based on how likely they are to turn things around.
1. Supermicrocomputer
Super Micro Computer, also known as Supermicro, was one of the most popular AI stocks to own earlier this year. But it has struggled for weeks following the release of its fiscal 2024 fourth-quarter earnings results and a report from notable short seller Hindenburg Research that questioned the company’s accounting practices. While such reports can be biased and make unsubstantiated claims, investors are nonetheless pessimistic about the stock following these developments.
Today, Supermicro trades for around $450 a share, more than 60% below its 52-week high of $1,229. The company’s business is booming as it provides customers with servers and IT infrastructure to help them grow their businesses, particularly as they expand their AI products and services.
For the fiscal year ending June 30, Supermicro’s revenue totaled $14.9 billion, up 110% year-over-year. Profits also rose from $640 million to $1.2 billion. However, its latest earnings report alarmed investors as gross margins have shrunk, which could seriously hamper its profit outlook if that trend continues.
Supermicro is an intriguing contrarian buy as Hindenburg’s short report and latest quarterly results have managed to overshadow its still-incredible growth spurt. There is certainly risk from shrinking margins, but it could be an AI stock worth taking a chance on now.
2. Snowflake
Data storage company Snowflake has struggled in 2024, as it posted unimpressive results and investors have been pessimistic since the company’s CEO unexpectedly retired earlier this year. It also didn’t help that the company was embroiled in a major data breach that impacted many major customers. Snowflake has fallen more than 40% since its shares peaked in late 2021.
For Snowflake to turn the tide, it needs to deliver better numbers, particularly on the earnings front. While the company has been growing its business, that’s not so encouraging when its losses have also widened. In the first two quarters of this year, Snowflake’s operating loss widened 26% year-over-year to $703.9 million, nearly matching its 31% revenue growth in the same period. And to make matters worse, management lowered its margin forecast for the full fiscal year 2025.
Until Snowflake can demonstrate that there is hope for future profitability, I would avoid the stock.
3. SoundHound AI
Shares of SoundHound AI soared earlier this year when investors learned that Nvidia had invested in the company. While the stock has stabilized in recent months, it’s still up more than 130% this year, even after falling 52% from its peak of $10.25.
SoundHound’s voice AI technology can help restaurants take orders and follow voice commands. While the business is growing, competition in the space is intense and the numbers may not be high enough to suggest that it has that much market share.
In the second quarter, the company’s revenue rose 54% to $13.5 million, but its net loss widened 60% to $37.3 million.
There’s still quite a bit of uncertainty surrounding SoundHound AI, and it’s probably the riskiest pick on this list given its sky-high valuation. I’d avoid it despite the sell-off.
Should You Invest $1,000 in Super Micro Computer Now?
Before you buy Super Micro Computer stock, you should consider the following:
The Motley Fool Stock Advisor team of analysts has just identified what they think is the 10 best stocks for investors to buy now… and Super Micro Computer wasn’t one of them. The 10 stocks that made the cut could deliver monster returns in the years to come.
Think about when Nvidia made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $710,860!*
Stock Advisor offers investors an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks each month. The Stock Advisor has service more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns as of September 16, 2024
David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Snowflake. The Motley Fool has a disclosure policy.
3 Artificial Intelligence Stocks Down More Than 50% From Their 52-Week Highs. Could They Be Bargains Now? was originally published by The Motley Fool