2 artificial intelligence (AI) stocks to buy before they surge 98% and 1,040%, according to certain Wall Street analysts (hint: not Nvidia)

Semiconductor company Nvidia drove S&P 500 higher this year amid growing interest in artificial intelligence (AI). But we’re still in the early stages of the AI ​​boom, and some Wall Street analysts are questioning alternative investments. For example:

• DA Davidson’s Gil Luria is expecting SoundHound AI (SOUND -0.41%) to reach $9.50 per share over the next 12 months. This forecast implies a 98% upside to the current share price of $4.80.
• Ark Invest analysts led by Cathie Wood expect adze (TSLA 0.21%) to reach $2,600 per share by 2029. This forecast implies a 1,040% increase from the current share price of $228.

Investors should never put too much faith in price targets, but SoundHound AI and Tesla are still worth considering. Here are the relevant details.

SoundHound AI: 98% with a default advantage

SoundHound specializes in conversational intelligence solutions or voice artificial intelligence (AI) products that can be embedded in smart devices. Its technology has applications in various industries, from automotive and consumer electronics to restaurants and customer service. And the company won more high-profile clients such as Stellar, Toastand Qualcomm.

SoundHound is a small business competing against giants like Amazon and Microsoft. But management believes it has better technology and a more flexible platform than its competitors, making it easier for brands to build differentiated and customized voice AI solutions.

SoundHound is growing very fast, but the company is still not profitable. Revenue rose 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 a year earlier.

Earlier this year, SoundHound completed the $25 million acquisition of SYNQ3 Restaurant Solutions, a company specializing in conversational intelligence for food and beverage brands. This deal established SoundHound as the largest provider of AI voice technology for restaurants. More recently, SoundHound completed the $80 million acquisition of Amelia, a recognized leader in enterprise conversational AI platforms, expanding its customer service footprint.

Going forward, Wall Street expects revenue to grow 96% annually through 2025, meaning analysts anticipate an acceleration in the coming quarters. This consensus estimate makes the current 24.2 time sales valuation look tolerable. Patient investors who are comfortable with risk and volatility may consider buying a small position today, but not with the expectation of a 98% increase over the next year.

Tesla: Up 1,040%

Tesla is the global leader in battery electric vehicles (BEVs), but its market share is declining in 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 a year earlier.

But investors shouldn’t worry too much. Loss of share is inevitable as the landscape becomes more competitive and the challenging economic environment is currently pushing consumers towards cheaper options.

More importantly, Tesla believes that its fully autonomous driving (FSD) technology will be its main 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 transportation business at some point. The company hasn’t set a specific date, but the information may come when Tesla unveils its robotaxi on October 10.

Tesla reported disappointing financial results in the second quarter. Revenue rose 2% to $25.5 billion and GAAP net income fell 45% to $1.5 billion. The company has now missed earnings estimates for four consecutive quarters. Factors contributing to this trend include price cuts aimed at boosting demand and the costs associated with ramping up Cybertruck production.

Looking ahead, Tesla is one of the companies best positioned to monetize self-driving technology. Its large and growing fleet of FSD-enabled vehicles supports data collection at a scale that no other automaker can match, and quality data is critical to training machine learning models. Indeed, Ark Invest estimates that Tesla accumulates self-driving data 110 times faster than Alphabetit’s Waymo.

Wall Street expects Tesla’s adjusted earnings to grow 21% annually through 2025. That estimate makes the current valuation of 98 times adjusted earnings look expensive. At this price, investors buying shares today should do so very conservatively. That means starting small and building your position over time.

Ark Invest’s price target implies a market cap of over $9 trillion by 2029. I think Tesla could reach that milestone eventually, depending on how well it executes on its robotaxi vision, but I’m skeptical that as for the chronology. The stock would need to return about 57% annually for Tesla to reach $9 trillion by 2029. So I’d advise investors to set their expectations much lower.