The artificial intelligence (AI) market is growing rapidly as companies and individuals flock to generative AI systems, including Alphabet‘s Bard and OpenAI’s ChatGPT platform. According to Bloomberg Intelligence, the generative AI market is “poised to explode” from a market value of just $40 billion in 2022 to $1.3 trillion by 2032.
How can you position your portfolio to take advantage of this? These two stocks are your best bets right now.
The pickaxe game in AI
During the California Gold Rush of the 1800s, most prospectors made little to no money, but the shopkeepers around them did quite well. This is how the saying “Shovel sales during a gold rush” came about. If this strategy suits your investing style, your AI bets should include: Nvidia (NASDAQ: NVDA).
Few companies are more important to the AI industry today than Nvidia. It sells some of the most advanced graphics processing units (GPUs) on the market—specialized chips that can handle heavy computational workloads through parallel processing. That’s a critical capability for the servers that train and run AI models. Whether it’s image recognition, natural language processing, or autonomous driving, AI systems require massive volumes of GPUs to function, and more will be needed to meet the growing demand for those AI services. By various estimates, Nvidia supplies between 70% and 95% of the world’s AI chips.
Of course, other chipmakers aren’t ignoring Nvidia’s success. As CEO Jensen Huang recently said , “I don’t think people are trying to push me out of the market. I probably know they are, so that’s different.” Intel and AMD are aggressively expanding their chip production capabilities, while startups like D-Matrix are looking to disrupt the market with new components that dramatically reduce the processing power required by AI models. As has been the case in previous chip wars, it’s far from certain which companies will win out in the long run. For now, though, Nvidia has a commanding lead. Any bet on the rise of AI should start with the company that supplies its most critical components. But if you’re looking for maximum upside, the stock below might be a better bet.
This speech recognition company’s stock has even more potential
Nvidia is a good bet for those bullish on AI. But with a market cap of over $2.7 trillion, it’s likely the company’s biggest growth days are behind it. Looking for a company whose best days are yet to come? Look no further than SoundHound AI (NASDAQ: ZOE).
Compared to Nvidia, SoundHound AI is small, with a market cap of just $1.7 billion. But with an addressable market already worth more than $140 billion, it has a clear path to massive growth. There are, however, some serious risks that investors should consider before jumping into the stock.
SoundHound specializes in integrating AI into systems that can have verbal conversations with people. Its speech recognition and language processing technology is already being used in a variety of industries, allowing people to chat with their vehicles about maintenance issues or order fast food via an AI chatbot. Big names like Hyundai and Applebee’s are already SoundHound AI customers.
With a growing list of customers and a portfolio of over 200 patents, SoundHound AI could be a major player in the artificial intelligence space this decade. But that naturally begs the question of why its valuation remains below $2 billion.
First, SoundHound AI may not have the capital needed to compete with the tech giants that are also investing heavily in its niche. Its research and development budget of just $56 million per year, for example, is far smaller than the budgets of competitors like IBM and Alphabet. So it’s not clear whether SoundHound’s lead is sustainable.
Second, the company is still losing money. Last quarter, it posted its biggest loss ever. That will be less of a problem if additional capital remains cheap and accessible. But if the market turns its back on SoundHound, it would hamper its already limited ability to compete directly with better-financed companies.
If SoundHound succeeds, it could deliver huge upside for patient shareholders. But there are also significant downside risks. This is much more of a boom-or-bust investment than Nvidia, and is only suitable for aggressive investors looking for maximum upside.
Should You Invest $1,000 in Nvidia Now?
Before you buy Nvidia stock, here are some things to consider:
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool recommends International Business Machines. The Motley Fool has a disclosure policy.
2 Top Artificial Intelligence Stocks to Buy Now was originally published by The Motley Fool
