Nvidia remains the runaway leader in chips used for artificial intelligence (AI). The company’s leading position in the data center market has led to triple-digit revenue growth in recent years. Nvidia is now one of the most valuable companies in the world, with a current market capitalization of $3.4 trillion.
However, with lagging revenues of $113 billion, Nvidia has grown into one terribly large companies, which will make it more difficult to maintain this level of growth. Nvidia’s revenue growth is already slowing from the triple digits, reaching 94% year over year in the most recent quarter. The stock soared on accelerating growth, but slowing growth could weigh on shareholder returns in the coming years.
Start your morning smarter! Wake up with Breakfast news in your inbox every market day. Register for free »
The good news is that there are plenty of other opportunities to take advantage of the AI arms race. If you’re looking for smaller AI companies that could potentially deliver monster returns, here are two to consider buying in 2025.
Shares of this AI voice solutions provider have given investors a wild ride in recent years, but the stock is rising after another strong quarter of growth. As the latest results show, SoundHound AI(NASDAQ: SOUND) is still a relatively small company looking for big opportunities.
The company’s revenue grew 89% year-over-year in the third quarter, boosted in part by a recent acquisition and growing market demand for its AI voice solutions. The company continued to see double-digit growth in the automotive sector, but also managed to diversify into customer service and retail banking solutions through the acquisition of Amelia.
Although SoundHound’s business remains unprofitable (it reported a $22 million loss on just $25 million in revenue last quarter), its shares are rising as the company shows that there is indeed a large and growing market for its technology. SoundHound’s AI agents help reduce the number of calls coming into customer support centers.
In addition, the Smart Ordering AI service for restaurants recently surpassed the 100 million customer interactions milestone. Major restaurant brands, such as Chipotle Mexican GrillJersey Mike’s and Applebee’s use SoundHound technology.
The company is also positioning itself as a leader in generative AI voice assistance for drivers. A recent survey commissioned by tSoundHound in partnership with Big Village found that 76% of US drivers would use an AI-powered voice assistant if it were available in the car. This could be a huge opportunity in the long run, as nearly half of drivers expressed frustration with finding and operating car functions.
SoundHound’s voice assistance could be a must-have for car manufacturers and already has a strong position in the market. A partnership with Stellantisowner of the Jeep, Dodge and Ram line of vehicles, has offered SoundHound’s generative AI support to several of the company’s European brands, including Alfa Romeo, Peugeot and DS Automobiles.
Although the stock has risen sharply in recent months, I wouldn’t be afraid to start a position here. SoundHound is growing rapidly and has a market cap of just $3.4 billion. I would view the stock’s recent progress as a bullish indicator going forward. While the stock will be volatile, an investment in SoundHound could be very rewarding over the next decade as the company expands into retail and banking.
The insatiable demand for Nvidia’s chips could point you to other opportunities in the AI infrastructure market. Astera Labs(NASDAQ: ALAB) is a leading provider of data center connectivity products.
These products enable data to be exchanged between chips and are just as essential as Nvidia’s graphics processing units (GPUs) for enabling AI training. With demand for its products soaring, Astera Labs just completed its initial public offering (IPO) earlier this year and can expect years of strong growth.
Astera Labs’ third-quarter revenue grew 206% year-over-year, demonstrating the company’s emergence as a leader in this market. “Our company has now entered a new phase of growth with multiple product families expanding [up] on AI platforms, based on both third-party GPUs and internally developed AI accelerators,” said CEO Jitendra Mohan.
The stock looks very expensive. Astera Labs only generated $305 million in revenue, which doesn’t seem enough to support its $16 billion market value. But investors are paying a high valuation and expect the company to maintain high levels of growth for several years to come – and there are a few reasons why it can meet those expectations.
The company is diversifying its product range, which also expands its addressable market opportunities. It is important that management invests in products that can achieve higher profitability in the long term. For example, Astera’s new Scorpio Smart Fabric switches will help data centers improve performance and maintain high average selling prices, which could be good for margins.
Astera Labs achieves a high gross margin of almost 78%, which means customers are willing to pay more for its products. The company’s adjusted net income was $40 million in the third quarter on revenue of $113 million – a whopping 35% profit margin.
AI is a key long-term growth catalyst for chip vendors and other infrastructure companies. More data centers and AI servers will be built over the next decade. Adding shares of a fast-growing vendor like Astera Labs can help you take advantage of that opportunity.
Consider the following before purchasing shares in SoundHound AI:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and SoundHound AI wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
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 $859,528!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. TheStock Advisoris on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns December 2, 2024
John Ballard has positions in Nvidia and SoundHound AI. The Motley Fool holds positions in and recommends Chipotle Mexican Grill and Nvidia. The Motley Fool recommends Stellantis and recommends the following options: Short December 2024 puts $54 on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
Nvidia’s growth is slowing. Here are two lesser-known AI stocks with monster return potential. was originally published by The Motley Fool
