Over the past year, many artificial intelligence (AI) stocks have delivered big returns for investors. However, this process resulted in the valuations of some stocks becoming abnormally high. In some cases, investors are paying a huge premium for future growth.
While high valuations may be justified in some situations, investors may be paying too high a premium and be at risk of correction in the future. Three of the most expensive AI stocks to own right now are: Nvidia (NVDA 1.13%), Soundhound AI (Thorn -0.88%)and microstrategy company (MSTR 7.52%). Are these stocks worth their inflated valuations, or is it time to exit these high-priced stocks?
1. Nvidia
Chipmaker Nvidia has symbolized the rapid rise in popularity of AI over the past year. The company's market capitalization has risen to new heights, exceeding $2 trillion. And, of course, investors are paying a hefty premium for that piece of business.
At 36 times the company's sales, this coveted AI stock isn't cheap. The bad news for value investors is that NVIDIA continues to be popular this year, and with a roughly 80% increase in value since early January, it may not get any more affordable.
In the fiscal year 2024, which ended Jan. 28, the company's revenue rose 126% to just under $61 billion, and its profit was nearly half that, at $30 billion. If only Nvidia could continue to grow at such an incredible pace. and Even with impressive profit margins, buying over the long term can make it seem like a cheap buy. In the case of Nvidia, AI stock may still be worth a high valuation.
2. Soundhound AI
SoundHound AI stock soared earlier this year after investors learned that Nvidia was investing in the AI ​​business. SoundHound uses his AI to enable conversational experiences like drive-thrus to speed up and improve the ordering process for customers. There's a lot of potential there, but this is an unproven business, and SoundHound reported $46 million in revenue last year, with net losses almost double that number, totaling -8,900. It is worth 1 million dollars.
Although SoundHound hasn't been able to prove profitability, investors appear to have jumped into the business largely on the hope that Nvidia made the right call and found a promising AI business to invest in. , SoundHound doesn't have a large market capitalization, but given its relatively modest earnings, investors are paying 45 times trailing earnings.
SoundHound has the potential to be a good buy if its business proves to be profitable while growing. But that's not the case right now, and the stock's multiple may be too high to justify the investment. Unless you have a high risk tolerance, you should think twice about owning stocks.
3. Microstrategy
The third AI stock on this list is MicroStrategy. MicroStrategy uses AI in enterprise analytics to improve decision-making and provide users with more useful and actionable insights. This helps users consider what-if scenarios and learn more about your business and key drivers.
MicroStrategy's fundamentals aren't all that impressive, and the company's revenue last year was $496 million, flat from the year before. The company is also struggling with profitability, with operating losses totaling $115 million.
That's about 60 times trailing earnings, making it one of the most expensive AI stocks investors can buy. A big reason why this stock is probably a popular buy this year, up 137% so far Bitcoin.
MicroStrategy is acquiring Bitcoin and may be gaining support from crypto investors in the process. But for long-term investors, there's nothing that justifies such a high premium for MicroStrategy. Given its hefty price tag, this stock could be a risky stock to own.
David Jagielski has no position in any stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and Nvidia. The Motley Fool has a disclosure policy.