Ever since artificial intelligence (AI) exploded in popularity early last year, investors have been fascinated by the parabolic potential of AI stocks.take Soundhound AI for example. Since the report came out in mid-February, Nvidia (NVDA 0.44%) owned the company's stock, and the company's stock price exploded, rising 295% in the following weeks.
However, investors should be careful, as following the crowd can be costly. SoundHound AI has lost support from at least one previously bullish analyst and has been the subject of a short report that raises some legitimate concerns. Additionally, SoundHound AI sells at 18 times next year's sales and has yet to generate a profit despite impressive growth.
That's not to say this investment won't ultimately be a winner, but given the high-risk nature of this company, investors may want to forget about SoundHound AI stock and focus on these two AI leaders instead. is recommended.
1. Nvidia
When it comes to AI, there's a compelling argument that no company is better placed to ride the AI ​​wave than Nvidia. The company adapted its technology to speed up his AI models years ago and is undisputed in powering machine learning algorithms, with an estimated 95% market share according to New Street Research. I'm a leader.
As a result, when generative AI burst onto the scene early last year, Nvidia already had a wealth of experience. The company tuned its processors to provide the computing power needed to run its AI systems, and sales rose in the lead-up to the race.
In the fourth quarter of fiscal 2024 (ending January 28), NVIDIA generated record revenue of $22.1 billion, up 265% year-over-year, and reported adjusted earnings per share (EPS) of 5.16, up 486%. increased to $. This is the third consecutive quarter of triple-digit year-over-year growth, and it may not be the last. For the current quarter, management is projecting record revenue of $24 billion, up 234% year-over-year.
There are other reasons to believe Nvidia's rapid growth will continue. Much of the AI ​​processing and workloads are done in the cloud, and Nvidia also has an advantage in the cloud. The company's market share is estimated at 95% of graphics processing units (GPUs) used in the data center space, according to CFRA equity analyst Angelo Gino.
Construction of data centers capable of AI processing has already begun. CEO Jensen Huang has suggested that the spending needed to bring data centers up to comparable standards will double to $2 trillion over the next few years.
Nvidia isn't cheap at 38 times forward earnings, but it commands a premium thanks to triple-digit growth.
What if instead of buying the stock that Nvidia bought, we bought Nvidia itself?
2. Super microcomputer
Another company already benefiting from accelerated adoption of generative AI is: super microcomputer (SMCI -0.67%), commonly referred to as Supermicro. The company also plays a big role in processing his AI, developing servers that are robust enough to handle AI workloads.
The company has partnered with Nvidia; Advanced Micro Devicesand intelAbove all, make sure your server is optimized to run on the latest and most robust processors. Additionally, these collaborations will allow Supermicro to provide a steady supply of AI-centric chips to power its servers.
Supermicro's second quarter 2024 net sales (ended December 31, 2023) were $3.66 billion, an increase of 103% year-over-year, and adjusted EPS of $5.59, an increase of 71%. Management was clear that the company's record revenues were the result of strong demand for rack-scale systems used for AI.
Some believe Supermicro is taking market share from its rivals. Barclays analyst George Wang said Supermicro “has a 7% market share globally, suggesting it is likely to grow further.” He went on to suggest that Supermicro was stealing market share from the company. Dell Technologies and hewlett packard enterprise.
Additionally, the aforementioned data center upgrade cycle will also benefit Supermicro. Bernstein analyst Toni Sacconaghi estimates the AI ​​server market will grow 75% annually over the next three years, calling the resulting expansion “unprecedented.”
Supermicro's stock price has soared, up 842% over the past year (as of this writing), but it remains significantly undervalued at less than three times next year's sales.
Considering Supermicro's cheap valuation and historical profits, it's a much better AI stock than SoundHound AI.
Danny Vena has held positions at Nvidia and Super Micro Computer. The Motley Fool has a position in and recommends Advanced Micro Devices and his Nvidia. The Motley Fool recommends Intel and recommends the following options: These are a long call on Intel at $57.50 in January 2023, a long call on Intel at $45 in January 2025, and a short call on Intel at $47 in May 2024. The Motley Fool has a disclosure policy.