Boosted by the AI craze, it’s been an excellent year for tech stocks, but the summer season is proving a bit shaky so far. Since mid-July, the trend has been down, with the tech-heavy NASDAQ losing ~5%.
Of course, that begs the question: should we be sounding alarm bells because of this shift?
Not at all, says Wedbush’s Daniel Ives, a 5-star analyst who ranks among the top 2% of Street’s equity professionals. Ives believes the new bull market is simply taking a breather, and he argues the pullback will be short-lived. There have been ample indications throughout this earnings season that the overall trend is up.
“The earnings season for the technology sector over the last few weeks in June has highlighted some of the dynamics now taking place between corporate and consumer spending globally, which we expect technology stocks to eventually move higher despite this near-term pullback,” explains the top analyst. “We resolutely stand by our bullish call that a 12%-15%+ in tech stocks is at stake by the end of the year as we believe the new tech bull market has begun.”
Against this backdrop, Ives has spotted an opportunity in two AI-driven technology stocks that he believes are poised to make the most of this bull market, one of which has a whopping 260% upside potential. We ran the pair through the TipRanks database to find out what other Street analysts also have to say. Let’s see the results.
SoundHound AI (SOUND)
The AI revolution is one befitting our first Ives-approved name. SoundHound AI is the industry leader in speech and audio recognition, using advanced machine learning and natural language processing techniques to enable seamless and intuitive interactions with audio content. SoundHound AI is known for its exceptional music recognition capabilities, allowing users to identify songs simply by humming, singing, or even describing a few lyrics.
In addition to its ability to recognize music, SoundHound AI extends its capabilities to voice assistants and smart devices, allowing users to interact with technology through voice commands and natural language. Its versatile applications range from voice searches and interpreting commands to hands-free control of various devices in homes, cars and other environments.
Over the years, the company has signed deals with an impressive list of companies, including Hyundai, Mercedes-Benz, Kia, Deutsche Telekom, Snap and Vizio.
On the financials side, Wall Street seemed pleased enough with the company’s latest quarterly reading. In the second quarter, sales increased 42% year-over-year to $8.8 million, higher than Street’s forecast of $8.1 million. Robust product royalties and strong results in the automotive segment drove the backlog up 20% to $339.2 million.
The company’s scaling and data center efficiency improvements helped the company achieve impressive gross margins of 79.1%, while cost savings helped the earnings per share of ($0.10) beat the consensus estimate of ($0.12). surpass.
Looking ahead, SoundHound reiterated its guidance for 2023 revenue of between $43 and $50 million.
It all points to future success in an AI-powered world, says Ives. “With AI gaining more attention than ever and creating a growing TAM, SoundHound is well positioned to capitalize on the demand for AI chatbots, offering more use cases every day, while expanding its voice-enabled ecosystem to accelerate growth” , he said. “Overall, we believe this was a big step in the right direction for the SOUN story as the company continues to build profitable growth with stable revenue drivers and strong monetization capabilities to meet demand from small players to large corporations as management across industries seeks ways to maximize efficiency.”
Given all of the above, Ives has high expectations. Along with an Outperform (ie Buy) rating, he assigns SOUN a $7 price target. This projection represents a significant 260% increase from the current share price of just $1.9. (Click here to view Ives’ track record)
Two other analysts recently submitted SOUN reviews and both are also positive, making the consensus a strong buy here. The average price target isn’t as optimistic as Ives’ target, but at $4.60, it still means stocks could deliver an impressive 137% return over the next year. (To see SOUN stock forecast)
Palantir Technologies (PLTR)
From one AI themed stock to another. Palantir is a software company known for its data analytics and integration platforms, making it a big data specialist. The company specializes in providing organizations with advanced tools to manage, analyze and understand large and complex datasets with its software platforms that include AI and machine learning capabilities.
The Gotham platform is widely used by government agencies, law enforcement and intelligence organizations, while in recent years Palantir has expanded its offerings beyond the government sector with products such as Palantir Foundry, aimed at commercial enterprises looking to improve their data management and analytics capabilities.
It also recently launched its Artificial Intelligence Platform (AIP) and judging by management’s sounds in the Q2 earnings call, it’s seeing a level of demand the company has never seen before.
Elsewhere in the quarter, revenue was up 12.8% year over year to $533.32 million, while adj. Earnings per share reached $0.05, both meeting Street’s expectations. The total number of customers increased by 38% over the same period a year ago, while the number of commercial customers in the US increased by 35% to 161 customers, demonstrating that Palantir’s efforts to gain traction in the industry are paying off .
And due to growing demand, the company increased its FY23 guidance from the previous $2.185 billion – $2.235 billion to more than $2.212 billion. The Street was looking for just $2.212 billion. The Q3 guide of $553.0 million – $557.0 million also came in above the consensus estimate of $553.1 million at the halfway mark.
Ives scans the printout and thinks it provides enough evidence that Palantir will continue to benefit from the adoption of AI.
“With an increase in FY23 guidance, a significant increase in customer base, strong performance and the AI arms race in full swing, we continue to believe that Palantir is the gold standard in AI and are confident in the efforts of the company to expand into the commercial space while maintaining its massive government presence,” Ives opined.
Accordingly, Ives rates PLTR stock as outperforming (i.e. buying), supported by a $25 price target. The implication for investors? Potential increase of 62% from current levels.
However, not everyone on the street is equally convinced. The stock claims a Hold consensus rating, based on a mix of 3 Buys and 5 Holds and Sells each. It should be noted that PLTR shares are up 141% year-to-date. As such, the $15.05 average target suggests that the stock is currently trading just below fair value. (To see Palantir stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the recommended analysts. The content is for informational purposes only. It is very important to do your own analysis before making an investment.