Artificial intelligence (AI) has taken the world by storm over the past year. The demand for generative AI, which can create intelligent responses, images and videos from simple text instructions, is skyrocketing and is expected to grow exponentially in the coming years.
Some of the most commonly used generative AI applications include OpenAI’s ChatGPT, Google’s Gemini and Microsoft Second pilot. ChatGPT has over 200 million active users per week, but overall, the generative AI market could grow about tenfold to $356 billion by 2030, according to Statista.
Here are two stocks you can capitalize on this opportunity with.
1. Soundhound AI
One area where demand for generative AI is taking off is conversational voice assistants Soundhound AI (NASDAQ: SOUND) emerges as a leader. The company is seeing strong demand from automakers for Soundhound Chat AI, a conversational generative AI assistant. But the company wants to expand into more industries.
Soundhound has also gained a strong foothold in the restaurant industry. More restaurants have started contacting Soundhound about their product instead of the other way around, which is a great endorsement of the company’s technology. Over the past three years, Soundhound’s quarterly revenue has more than doubled. Revenue grew 54% year over year, reaching $13.5 million in the second quarter.
Soundhound just acquired Amelia, a leading AI software company, for $80 million. The deal opens up more sectors for Soundhound to expand into, including healthcare, financial services, smart devices and retail.
The stock has soared in value over the past year, but the main negative remains uncertainty about Soundhound’s profitability. Sales are growing, but profits are still not reported. The company’s adjusted net loss last quarter was $14.8 million.
However, Soundhound spends a lot of money on marketing, which reduces its net profit. The company spent 42% of its revenue on marketing last quarter, but this percentage is gradually declining, which can be attributed to growing awareness of its voice AI capabilities. Looking ahead, marketing costs could become a source of profit.
For these reasons, the stock, which is up 189% in the past year, is still worth buying. Investors are getting in on the ground floor of a small-cap AI stock that could rise along with the generative AI market over the next decade.
2. Nvidia
Nvidia (NASDAQ: NVDA) has long been a favorite chip supplier for people who play video games. But in recent years, Nvidia’s graphics processing units (GPUs) have been used for mining cryptocurrencies, running cloud services in data centers, and training AI models. This has allowed Nvidia to translate its dominance in gaming GPUs into a similar lead in the AI ​​chip market.
Nvidia’s GPUs are used by every major cloud service provider. It is now working with some of the largest companies in the world on AI initiatives. The company’s revenue has soared over the past year, rising 122% year over year in the last quarter. A key driver of this demand is growing investment in the development of AI-powered chatbots and generative AI co-pilot assistants.
One risk for Nvidia is increasing competition from custom AI chip makers. However, Nvidia’s steady innovation should protect its lead and keep the momentum going. Last quarter, it released Nvidia Inference Microservices (NIM), which is used by more than 150 companies to accelerate the development of generative AI applications. Nvidia also announced a new AI foundry service Metaplatforms‘Llama family of large language models, allowing countries and enterprises to use their own data to create custom models and AI applications.
Nvidia is well positioned for growth on the hardware side with its GPUs, but software is becoming an overlooked opportunity. For example, AT&T experienced a 70% cost savings after using Nvidia NIMs for generative AI call transcription and classification. Nvidia expects software and support services revenue to reach an annual run rate of nearly $2 billion by the end of the year.
Despite the stock rising almost 200% in the past year, its forward price-to-earnings ratio is 30 according to next year’s earnings forecast, which is not that expensive for the AI ​​chip leader. While investors shouldn’t expect the stock to rise as quickly as it has in recent years, Nvidia investors can expect the stock to continue reaching new highs over the long term.
Should you invest $1,000 in SoundHound AI now?
Consider the following before purchasing shares in SoundHound AI:
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Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. John Ballard has positions in Meta Platforms, Nvidia and SoundHound AI. The Motley Fool holds positions in and recommends Alphabet, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
Generative AI Explodes: 2 Monster Stocks to Buy Now was originally published by The Motley Fool
