If you want to create massive upside potential for your portfolio, get to know the AI industry. According to data collected by Statista, the AI market is already worth $184 billion. But by the end of this decade, its value will rise to an astonishing $827 billion – an average annual growth rate of almost 30%!
How can you benefit from this growth? The two AI stocks below have you covered.
Get in on the ground floor of AI
Do you want to bet on the rise of AI? Start with Nvidia (NASDAQ: NVDA).
There’s an old saying: Sell during a gold rush. The idea is that regardless of whether the gold rush produces anything concrete in terms of actual gold production, those selling the shovels are still making a profit. The same can be said about Nvidia today when it comes to AI. Training and running AI models requires an enormous amount of computing power. These complex, data-intensive tasks often require specialized chips based on high-performance graphics processing units (GPUs).
Nvidia’s AI accelerator GPUs are the best on the market right now. This reality is borne out in the market share figures, with most estimates giving the company a 70% to 95% share of the AI chip market. Nvidia’s dominance is also reflected in its pricing power. Gross margins for the company are approximately 76% – a solid lead over the competition, which currently generates gross margins of 40% to 50%.
NVDA profit margin data according to YCharts
The AI spending craze that is fueling Nvidia’s rise is unlikely to be a short-term phenomenon. Industry spending on AI infrastructure is expected to quadruple by the end of this decade, with a compound annual growth rate (CAGR) of nearly 30%. And it is fair to say that competition will increase fiercely in the coming years. But Nvidia has a strong lead, with the financial and reputational power to invest heavily in new products.
Intel And Advanced micro devices are contrarian choices for AI hardware if you think Nvidia’s market leadership could disappear over time. For now, however, Nvidia remains the undisputed leader for investors looking to bet directly on the rise of AI.
Take a look at the next big AI stock
I love Nvidia stock. But now that the company is valued at $3.3 trillion, it’s unclear whether it can repeat its previous successes — at least when it comes to stock prices. I fully expect Nvidia’s sales base to take off over the next decade. But the market has seized on this growth potential and is pricing the company at an astonishing 35x revenue.
If you want to make the most money possible in AI stocks, you should look at something smaller. SoundHound AI (NASDAQ:SOUND)for example, is valued at just $1.9 billion, even though it is directly exposed to many of AI’s biggest growth drivers. There is potentially more risk associated with this company than Nvidia, but there is also the opportunity for significantly greater profits.
As the name suggests, SoundHound is involved in the voice and sound categories of AI. Every time you interact with your devices with your voice, such as asking your phone what song is currently playing, talking to your car about maintenance issues, ordering from a drive-thru window, or talking to a store employee customer service on the phone – SoundHound wants to be involved. The AI technology can increase your experience in these situations while increasing efficiency for companies in terms of labor costs.
SoundHound’s technology is not new. The company has been around for decades, with a growing customer list that includes major automakers, global restaurant brands, and even a range of technology companies. But the voice AI category will face stiff competition from Big Tech companies, almost all of which are developing their own platforms.
Whether SoundHound will be a long-term winner is unclear. The company is still losing money, while its research and development budget – which currently stands at just $56 million per year – pales in comparison to what Big Tech spends. But in return you get a stock directly exposed to AI winds – with proven technology – with a market cap of less than $2 billion. There are a lot of risks to this story, but it’s easy to imagine that the company will grow significantly in size if technology and revenue growth continue on their current trajectory.
Don’t miss this second chance at a potentially lucrative opportunity
Have you ever felt like you missed the boat on buying the most successful stocks? Then you would like to hear this.
On rare occasions, our expert team of analysts provides a “Double Down” Stocks recommendation for companies they think are about to pop. If you’re worried that you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
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Amazon: If you had invested $1,000 when we doubled in 2010, then you have $21,285!*
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Apple: If you had invested $1,000 when we doubled in 2008, you would have $44,456!*
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Netflix: If you had invested $1,000 when we doubled in 2004, you would have $411,959!*
We’re currently issuing ‘Double Down’ warnings for three incredible companies, and another opportunity like this may not happen anytime soon.
See 3 “Double Down” Stocks »
*Stock Advisor returns October 21, 2024
Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool holds 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.
2 Artificial Intelligence (AI) Stocks That Are No-Brainer Buys was originally published by The Motley Fool