Artificial intelligence (AI) has the potential to be one of the biggest revolutionary advancements in technology that the world has ever seen. Companies are just starting to embrace the technology and what it can do. However, the early results are very promising, allowing organizations to become more efficient and better serve their customers.
But make no mistake, artificial intelligence is still in its early days, and there are a lot of opportunities for investors to profit from companies helping lead the way with AI. Let's look at some of the best stocks to play the AI bull run.
Nvidia
No company is benefiting more from AI at the moment than Nvidia (NVDA +4.39%). The maker of graphics processing unit (GPUs) has become the backbone of the infrastructure needed to power AI applications in data centers. GPU chips are able to do technical calculations faster and with less energy than central processing units (CPUs), which makes them ideal for use in AI training and inference.
NASDAQ: NVDA
Key Data Points
Nvidia's GPUs, meanwhile, have become the industry gold standard due to its CUDA software platform, which allows its chips to be programmed directly, saving customers time and money.
Nvidia will continue to be the go-to company for building out the more powerful data centers needed to power AI applications. Meanwhile, Nvidia isn't a one-trick pony, and its networking business is also greatly benefiting from AI.
Nvidia has been putting up incredible growth, including a more than tripling of its revenue during its most recent quarter. Despite that, the stock is attractively valued at only a 36 forward P/E, setting it up for a bull run as the business grows and investors push up the stock price.
NVDA PE Ratio (Forward) data by YCharts
Amazon
When it comes to AI, Amazon (AMZN 1.15%) may not be the first stock that comes to mind. However, the e-commerce giant has been heavily investing in the technology.
The company owns the largest cloud business, Amazon Web Services or AWS, which is benefiting from the proliferation of AI. It has also developed two chips, Trainium and Inferentia, to be used specifically for AI applications.
NASDAQ: AMZN
Key Data Points
On the software side, the company has developed platforms to help customers build their own AI models and applications. Its SageMaker platform helps customers build, train, and deploy machine learning models, while its Bedrock platform gives customers high-performing models from Amazon and other leading AI companies through a single API to help them build AI applications.
Amazon has also built out its own AI-powered assistant for software developers, Amazon Q. The AI assistant can write, test, and debug code. It can also answer questions about company policies, products, and other topics.
Amazon has shown in the past that it is willing to spend big to ultimately win big, and AI appears to be no exception. Trading at a forward P/E of around 41, the stock has room to run given the AI growth opportunities in front of the company.
AMZN PE Ratio (Forward) data by YCharts
SoundHound AI
Shares of SoundHound AI (SOUN +1.19%) skyrocketed earlier this year on news that Nvidia had made an investment in the AI-powered voice assistant company. However, more recently, the stock has come back down to a more reasonable level.
NASDAQ: SOUN
Key Data Points
Soundhound's technology helps voice assistants and humans interact more naturally, allowing users to ask more complex questions while getting better answers. The company has made strong inroads in the automobile industry and is making good progress in the restaurant space as well. However, the applications of its technology should expand far beyond these two industry verticals.
The company has an attractive recurring revenue business model whereby it gets royalty payments based on volume, usage, or the life of the product. For applications where no product is involved, such as with its restaurant offering, it uses a subscription model.
Image source: Getty Images.
SoundHound is still relatively small, generating only $46 million in revenue last year. However, it has a large booking backlog of $661 million, which if honored will turn into revenue over the next several years. The weighted average length of its contracts is about six and a half years, with more revenue backend loaded. Much of the company's backlog comes from its relationships with about 20 auto brands and having its technology built into new models of their vehicles.
Trading at over 21 times forward sales, SoundHound stock is not cheap. However, its valuation has come down a lot in recent months, and it has a lot of potential to grow if it can continue to move its technology into more products. Getting into smartphones, for example, would be a game changer for the company and the stock.
SOUN PS Ratio (Forward) data by YCharts
