Wall Street Bullish on AI Stocks: Potential for Massive Gains Amid Regulatory Scrutiny

2 Artificial Intelligence (AI) Stocks to Buy Before They Soar 98% and 1,040%, According to Certain Wall Street Analysts (Hint: Not Nvidia) | The Motley Fool

Select Wall Street analysts expect shares of SoundHound AI and Tesla to rocket higher. Semiconductor company Nvidia has led the S&P 500 higher this year amid mounting interest in artificial intelligence (AI). But we are still in the early stages of the AI boom, and certain Wall Street analysts are pounding the table on alternative investments. For example: Investors should never put too much confidence in price targets, but SoundHound AI and Tesla are worth further consideration. Here are the relevant details. SoundHound specializes in conversational intelligence solutions, or voice artificial intelligence (AI) products, that can be incorporated into smart devices. Its technology has applications across various industries, from automotive and consumer electronics to restaurants and customer service. And the company has won several high-profile customers, such as Stellantis, Toast, and Qualcomm. SoundHound is a small business competing against behemoths like Amazon and Microsoft. But management believes it has better technology and a more flexible platform than its competitors, which makes it easier for brands to build differentiated and customized voice AI solutions. SoundHound is growing very quickly, but the company has yet to turn a profit. Revenue surged 54% to $13.5 million in the second quarter. Meanwhile, non-GAAP (generally accepted accounting principles) net income was negative $14.8 million, a slight improvement from negative $16 million in the prior year. Earlier this year, SoundHound completed its $25 million acquisition of SYNQ3 Restaurant Solutions, a company that specializes in conversational intelligence for food and beverage brands. That deal established SoundHound as the largest provider of voice AI technology for restaurants. More recently, SoundHound completed its $80 million acquisition of Amelia, a recognized leader in enterprise conversational AI platforms, extending its purview in customer service. Going forward, Wall Street expects revenue to increase at 96% annually through 2025, meaning analysts anticipate an acceleration in the coming quarters. That consensus estimate makes the current valuation of 24.2 time sales look tolerable. Patient investors comfortable with risk and volatility can consider buying a small position today, but not with the expectation of 98% upside in the next year. Tesla is the global leader in battery electric vehicles (BEVs), but its market share is declining across the United States and Europe. The company accounted for 17.6% of global BEV sales year to date through July, down 3.3 percentage points from the prior year. But investors shouldn't fret too much. Losing share is inevitable as the landscape becomes more competitive, and the challenging economic environment is currently pushing consumers toward cheaper options. More importantly, Tesla believes full self-driving (FSD) technology will be its primary source of profitability in the future. The company already monetizes FSD through subscription sales, but CEO Elon Musk has discussed licensing the technology to other automakers. Additionally, Tesla plans to launch an autonomous ride-hailing business at some point. The company has not set a specific date, but information may be forthcoming when Tesla unveils its robotaxi on Oct. 10. Tesla reported disappointing financial results in the second quarter. Revenue increased 2% to $25.5 billion, and GAAP net income declined 45% to $1.5 billion. The company has now missed earnings estimates in four consecutive quarters. Factors contributing to that trend include price cuts meant to stimulate demand and costs associated with the Cybertruck production ramp-up. Looking ahead, Tesla is one of the companies best positioned to monetize autonomous driving technology. Its large, growing fleet of FSD-enabled vehicles supports data collection on a scale no other automaker can match, and quality data is essential for training machine learning models. Indeed, Ark Invest estimates Tesla is accumulating autonomous driving data 110 times faster than Alphabet's Waymo. Wall Street expects Tesla's adjusted earnings to increase at 21% annually through 2025. That estimate makes the current valuation of 98 times adjusted earnings look expensive. At that price, investors who buy shares today should do so in a very conservative fashion. That means start small and build the position over time. Ark Invest's price target implies a market capitalization above $9 trillion by 2029. I think Tesla may hit that milestone eventually, depending on how well it executes on its robotaxi vision, but I am skeptical about the timeline. The stock would need to return about 57% annually for Tesla to hit $9 trillion by 2029. So, I would advise investors to set their expectations much lower.

1 Top Artificial Intelligence (AI) Stock That's Not Currently Facing a DOJ or SEC Probe | The Motley Fool

Looking for an AI company that regulators don't have under their microscopes? This stock is for you. In new and exciting fields like artificial intelligence (AI), it can be difficult to separate the good from the bad. From investment advisors to the companies themselves, there has been a slew of investigations and probes so far in 2024 scrutinizing the claims and promises of various AI tech players. For example, Nvidia received a federal subpoena, Alphabet is facing antitrust litigation, and whistleblowers are pressuring the SEC to investigate OpenAI. These probes might not change the fundamentals of those companies, but some investors would rather not have to worry about such a risk. But not every business in this hot niche is under fire -- and one in particular looks like an extremely attractive investment prospect. There are risks to buying into this smaller company, but also considerable upside potential. Relatively few investors have heard of SoundHound AI (SOUN -0.41%). The company has a market cap of only $1.7 billion. But if it gets its way, it'll be making plenty of noise over the next few years because it's in the right place at the right time. As its name suggests, SoundHound is involved in the sound business. Specifically, it has developed voice AI and speech recognition that can be useful in a host of places, from vehicles to drive-thrus. Management claims its technology is "best-in-class...surpassing competitors in speed, accuracy, and complex language understanding." Its growing customer base is a testament to these claims. SoundHound has a deep portfolio of patented AI technologies and a long list of pilot customers. In recent years, it has signed automakers like Dodge and Honda, which will use its voice software to augment the experience of their drivers. Stellantis -- which owns the Fiat and Jeep marques, among many others -- recently signed a deal with SoundHound that will allow its drivers to chat with their cars about maintenance issues. The company has also signed agreements with several restaurant operators, including Applebee's and White Castle, aiming to make their drive-thrus more efficient. SoundHound has an impressive technology portfolio. And it's signing customers across a variety of industries, accruing credibility just as the AI revolution is taking off. While shares are expensive at 24 times sales, the company's diminutive size and quickly growing revenue base mostly justify the valuation. If management can execute, it could be the next blue chip AI stock. SoundHound seemingly has the right technology at the right time. And unlike some other AI companies, it's not under any major investigations from regulators. But that doesn't mean the company is free of flaws. While the company's rising revenue base and growing customer list -- not to mention a $3.7 million direct investment by AI chipmaker Nvidia -- work in SoundHound's favor, it's far from certain that the company will be a winner in the competitive AI space. Tech giants, including Alphabet and IBM, are developing their own solutions, and it's possible that SoundHound's $60 million annual research and development budget won't be enough to keep its technology competitive over the long term. According to The Washington Post, "the investments in AI represent some of the largest infusions of cash in a specific technology in Silicon Valley history." Google, IBM, and other tech giants like Microsoft are spending tens of billions of dollars per quarter building out AI infrastructure, and it's not yet clear how differentiated SoundHound's platform is against competing models like Google's Gemini or OpenAI's ChatGPT, which Microsoft has backed. SoundHound is carefully choosing its end markets and developing expertise in niches like restaurant drive-thrus and in-vehicle communications. Its growing customer list lends it a reputation, as well as a growing trove of real-world data to further refine its AI models. However, it's hard to imagine big tech ignoring these opportunities for long. In the coming years, competition will grow immensely. That could relegate SoundHound to the niche use cases it's already carved out. It could also push out the company's technology altogether. If it comes down to who can spend the most to accelerate its AI platform the fastest, SoundHound likely doesn't stand a chance versus its deep-pocketed competitors. Still, SoundHound remains a promising pick for risk-tolerant growth investors. If the company fails, shareholders will lose everything. But if it succeeds, it's not hard to imagine that its shares could grow to several times their current value, especially given the company's market cap of under $2 billion. Investors seeking maximum growth potential should examine SoundHound closely, but most investors should watch this company from the sidelines.