Two Top AI Stocks to Consider for Investment

The world of AI stocks is currently thriving. If you're looking to diversify and enhance your portfolio, it’s essential to pay attention to the burgeoning AI industry. According to Statista, the AI market is valued at approximately $184 billion today. Projections suggest that by 2030, this figure could skyrocket to about $827 billion, marking an impressive annual growth rate of nearly 30%!

How can you take advantage of this remarkable growth? Below are two AI stocks that present strong investment opportunities.

Invest Early in AI Technology

If you’re interested in tapping into the potential of AI, consider Nvidia (NVDA 2.31%).

There’s an old saying: during a gold rush, sell shovels. This means that in any boom, those who provide necessary tools can also profit, regardless of the outcome of the rush itself. Nvidia exemplifies this idea in the AI space. Running and training AI models requires substantial computing power, often necessitating specialized chips built on high-performance graphics processing units (GPUs).

Nvidia’s AI accelerator GPUs are currently considered the best available. Reports estimate that the company holds a staggering 70% to 95% share of the AI chip market. Such dominance is also reflected in its gross margins, which are around 76%, contrasting with competitors who typically generate 40% to 50% gross margins.

NVDA Profit Margin data by YCharts

The surge in AI spending that is propelling Nvidia’s growth isn’t expected to be a fleeting trend. Industry investments in AI infrastructure are projected to quadruple by 2030, with a compound annual growth rate (CAGR) of nearly 30%. Although competition will undoubtedly increase in the coming years, Nvidia is well-positioned with robust resources to invest in new products.

For those considering alternatives in AI hardware, Intel and Advanced Micro Devices are potential options, particularly if you believe Nvidia’s market advantage may decline in time. However, for now, Nvidia stands out as a premier choice for those eager to invest in the AI revolution.

Explore Emerging AI Stocks

While Nvidia is an excellent choice, its current valuation is around $3.3 trillion, raising questions about its capability to replicate prior stock price increases. While it seems likely that Nvidia’s sales will see considerable growth over the next decade, the market is aware of this potential and has priced the company at around 35 times sales.

If you’re seeking the greatest possible returns from AI stocks, keep an eye on smaller firms. For example, SoundHound AI (SOUN -5.64%) is currently valued at approximately $1.9 billion but is closely connected to some of the biggest drivers of growth in the AI sector. While investing in SoundHound may come with higher risks compared to Nvidia, it also provides opportunities for more significant profits.

SoundHound specializes in the voice and sound areas of AI technology. Whenever you use voice commands on devices—be it asking your phone about a song, discussing car maintenance, ordering from a restaurant drive-thru, or chatting with customer service—SoundHound aims to enhance those experiences and reduce labor costs for businesses.

Although SoundHound has been around for many years and has gained various major clients, including car manufacturers and global restaurant chains, it faces stiff competition from tech giants who are developing their own voice AI platforms.

It remains to be seen whether SoundHound can emerge as a long-term success. The company is still operating at a loss, and its research and development budget of $56 million falls short when compared to the investments made by larger tech companies. Nevertheless, investing in this stock gives you exposure to the promising AI market with proven technology, all while maintaining a market cap under $2 billion. The potential for growth is substantial if its technology continues to gain traction.

AI, Stocks, Investment