Generative AI Explodes: 2 Monster Stocks to Buy Now

Artificial intelligence (AI) has taken the world by storm in the past year. Demand for generative AI, which can create intelligent responses, images and videos from simple text instructions, is booming and expected to grow exponentially in the coming years.

Some of the most widely used generative AI applications are OpenAI’s ChatGPT, Google’s Gemini, and Microsoft The co-pilot. ChatGPT has more than 200 million weekly active users, but overall, the generative AI market could grow roughly 10-fold to $356 billion by 2030, according to Statista.

Here are two actions to take advantage of this opportunity.

1. Soundhound AI

One area where demand for generative AI is taking off is conversational voice assistants, where Soundhound AI (SOUND -2.51%) emerges as a leader. The company is seeing strong demand from car manufacturers for Soundhound Chat AI, a conversational generative AI assistant. But the company aims to expand into more industries.

Soundhound has also gained a strong foothold in the restaurant industry. More restaurants have started contacting Soundhound about its product, rather than the other way around, which is a great validation of the company’s technology. Over the past three years, Soundhound’s quarterly revenue has doubled. Revenue rose 54% year-over-year to $13.5 million in the second quarter.

Soundhound just acquired Amelia, a leading AI software company, for $80 million. The deal opens up more industries for Soundhound to expand into, including healthcare, financial services, smart devices and retail.

The stock has risen in value over the past year, but the main negative continues to be uncertainty about Soundhound’s profitability. Revenue is booming, but it’s yet to report a profit. The company’s adjusted net loss was $14.8 million last quarter.

However, Soundhound spends a lot of money on marketing, which reduces its bottom line. The company spent 42% of its revenue on marketing last quarter, but that percentage is gradually falling, which can be attributed to growing awareness of its voice AI capabilities. Looking ahead, its marketing spend could become a source of profit.

For these reasons, the stock, which has climbed 189% in the past year, is still worth buying. Investors are getting in on the ground floor of a small-cap AI stock that could grow with the generative AI market over the next decade.

2. Nvidia

Nvidia (NVDA 0.03%) has been a favorite chip supplier for people who play video games for a long time. But in recent years, Nvidia’s graphics processing units (GPUs) have been used to mine cryptocurrencies, run cloud services in data centers, and train AI models. This allowed Nvidia to translate its dominance in gaming GPUs into a similar leader in the AI ​​chip market.

Nvidia GPUs are used by every major cloud service provider. He now works with some of the world’s largest companies on AI initiatives. The company’s revenue has grown over the past year, up 122% year over year. A key driver of this demand is growing investment in the development of AI-based chatbots and generative AI co-pilot assistants.

One risk for Nvidia is increased competition from makers of custom AI chips. However, Nvidia’s constant innovation should protect its lead and maintain its momentum. Last quarter, it launched Nvidia Inference Microservices (NIM), which is used by more than 150 companies to accelerate the development of generative AI applications. Nvidia also announced a new AI foundry service with Meta platformsThe Llama family of large language models that will allow nations and enterprises to use their proprietary data to create custom models and AI applications.

Nvidia is well positioned for growth on the hardware side with its GPUs, but software is an overlooked opportunity. For example, AT&T saw 70% cost savings after using Nvidia NIMs for generative AI call transcription and classification. Nvidia expects revenue from software and support services to reach an annual run rate of nearly $2 billion by the end of the year.

Despite rising nearly 200% over the past year, the stock’s forward price-to-earnings ratio on next year’s earnings estimate is 30, which isn’t that expensive for the AI ​​chip leader. While investors shouldn’t expect the stock to rise as quickly as in previous years, Nvidia investors can expect the stock to continue reaching new highs in the long term.