TER - The Nvidia Rivals: 3 AI Stocks Ready to Steal the Spotlight
2024-05-22 09:49:00 ET
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
Artificial Intelligence (“AI”) is increasingly emerging as a pivotal force shaping the future of technology. As a key player in the AI revolution, Nvidia (NASDAQ: NVDA ) has been leading the list of AI stocks to buy. The tech giant is renowned for its graphics processing units (GPUs) for gaming and professional markets. Wall Street also focuses on its system-on-a-chip units (SoCs) for the mobile computing and automotive markets.
This week, the spotlight is on the NVDA stock as it is reporting earnings. Nvidia’s stock has been a focal point among investors, due to its remarkable performance over the few past years, but especially since 2023. NVDA’s success can be traced back to its strategic focus on some of the most transformative technologies, including AI, deep learning and autonomous vehicles. Powering breakthroughs in machine learning and data science, its GPUs have become indispensable.
However, the AI stocks to buy extend beyond Nvidia. The market is expansive and growing, with many companies vying for a share of the lucrative pie. According to a report by Grand View Research, the global AI market size stood at $196.6 billion in 2023. In addition, it could grow at a compound annual growth rate (CAGR) of 36.6% from 2024 to 2030. This growth should be propelled by increasing data volume and the adoption of cloud-based applications and services. There has also been a surge in demand for intelligent virtual assistants.
As the AI industry continues to burgeon, several other companies are making their presence felt and are ready to challenge Nvidia. These companies are not just competitors. They are also potential game-changers, ready to steal the spotlight with their innovative AI solutions. In this article, we will explore three such AI stocks to buy.
Palantir Technologies ( PLTR)
Among the AI stocks to buy, Palantir Technologies (NYSE: PLTR ) could appeal to long-term investors. The software company specializes in big data analytics for government agencies and commercial clients. Their “Foundry” platform integrates and analyzes large, complex datasets, making PLTR a top contender among AI stocks to buy.
Investors have been eyeing Palantir for its potential to capitalize on AI, used in everything from fraud detection to national security. The AI play released the financial metrics for the first quarter 2024 at the beginning of May. Revenue grew 21% year-over-year (YOY) to $634 million, driven by strong performance in its U.S. commercial business, which saw a 40% increase. Adjusted earnings per share (“EPS”) was 8 cents.
In a move to empower businesses and governments globally, tech giants Oracle (NYSE: ORCL ) and Palantir are working together . By combining Oracle’s robust cloud infrastructure with Palantir’s cutting-edge AI and data analysis tools, the partnership aims to unlock the full potential of data for organizations. This could translate to improved efficiency, meeting data sovereignty needs and gaining a competitive edge.
As a result, PLTR stock is up 28% year-to-date (YTD). The company’s profitability metrics are impressive. However, its valuation metrics indicate high expectations, with a price-to-earnings (P/E) ratio of 171x and a price-to-sales (P/S) ratio of 21x. Meanwhile, the 12-month median price forecast for PLTR is $22.00, presenting an upside potential of 3.6% from current levels. Therefore, interested readers may wait for a potential decline toward the $20 level before loading up on PLTR stock.
SoundHound AI ( SOUN)
The next company on our list of AI stocks to buy is SoundHound AI (NASDAQ: SOUN ). The company focuses on the voice AI segment, having made significant strides in enhancing conversational experiences. Its conversational interfaces include automatic speech recognition, natural language understanding and voice-enabled commerce solutions.
On May 9, SoundHound released first quarter 2024 financial metrics. Revenues grew 73% YOY to $11.6 million, but the adjusted loss per share was 7 cents. The company raised its full-year 2024 revenue guidance to between $65 million and $77 million, anticipating continued growth. SoundHound’s management remains optimistic about achieving a revenue milestone of $100 million and reaching adjusted EBITDA profitability by 2025.
Meanwhile, SoundHound AI has strategically partnered with Nvidia and Perplexity to enhance and expand its voice AI capabilities. These partnerships aim to integrate SoundHound’s conversational AI technologies with Nvidia’s DRIVE platform for in-vehicle applications and incorporate Perplexity’s large language models to improve the accuracy of SoundHound’s AI solutions. Investors are hopeful that the collaborations could drive innovation and monetization, significantly impacting SoundHound’s market presence and technological advancement.
So far in the year, SOUN stock has returned 146% YTD, showcasing a strong positive market sentiment towards its future prospects. However, valuation remains expensive as SOUN shares are changing hands at 25.5 times sales. Yet Wall Street’s median price forecast stands at $7.00, suggesting an upside potential of over 36%.
Teradyne (TER)
We conclude our discussion of AI stocks to buy with Teradyne (NASDAQ: TER ). The company is one of the most important names in testing equipment for semiconductors, wireless products and industrial automation solutions.
Teradyne’s management released first quarter fiscal 2024 earnings in late April. Investors noted the continued weakness in mobility. Yet robust memory and networking demand driven by AI applications drove financial performance above the high end of guidance. Going forward, further growth in the semiconductor industry is expected to gain traction, benefiting Teradyne as a provider of testing equipment.
In 2024, management is anticipating a 500% increase in the high-bandwidth memory test market. The growth will likely be driven by AI tailwinds for semiconductor testing. Analysts note that the increasing complexity of semiconductor testing should continue to drive Teradyne’s margin expansion and profit growth in the long term as well.
As a result, since January, TER stock has advanced 33.8%. Shares are changing hands at a forward P/E ratio of 44x and a trailing sales ratio of 7.5x. We would wait for a pullback and look to buy Terradyne stock around $130.
On the date of publication, Tezcan Gecgil has both long and short positions in NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines .
Tezcan Gecgil, PhD, began contributing to InvestorPlace in 2018. She brings over 20 years of experience in the U.S. and U.K. and has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Publicly, she has contributed to investing.com and the U.K. website of The Motley Fool.
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