It's hard not to get caught up in the hype with artificial intelligence (AI) when analysts are projecting so much growth. Grand View Research projects that by 2030, the AI market will be worth $1.8 trillion, up from approximately $279 billion this year. With growth like that, investors who don't own AI stocks could feel like they're missing out.
But buying shares of chipmaker Nvidia or other AI stocks that have already generated massive returns may not be all that enticing given their lofty valuations. Buying at these high levels could limit the gains you make from a stock both in the short and long term.
Another option is to consider AI stocks that haven't been doing so well recently. You may be taking on more risk but could net some strong gains if they eventually rebound. Snowflake (SNOW +1.28%), Super Micro Computer (SMCI +1.38%), and SoundHound AI (SOUN 6.90%) are all AI stocks down more than 50% from their 52-week highs. Below, I've ranked them based on how likely it is they can turn things around.
NASDAQ: SMCI
Key Data Points
1. Super Micro Computer
Super Micro Computer, also known as Supermicro, was one of the hottest AI stocks to own earlier this year. But it has been struggling for weeks after its fiscal 2024 Q4 earnings release and a report from notable short seller Hindenburg research questioning the company's accounting practices. Although such reports may be biased and contain unproven allegations, investors have nonetheless been bearish on the stock following these developments.
Today, Supermicro stock is trading at around $450 per share, more than 60% below its 52-week high of $1,229. The company's business has been booming as it provides customers with servers and IT infrastructure to help them grow their operations, particularly as they expand their AI products and services.
For the fiscal year ended June 30, Supermicro's sales totaled $14.9 billion, up 110% year over year. Profits also jumped from $640 million to $1.2 billion. However, the latest earnings report alarmed investors as its gross margin has been shrinking, which could drastically hinder its earnings outlook should that trend continue.
Supermicro makes for an intriguing contrarian buy because Hindenburg's short report and the latest quarterly results have managed to overshadow what's still an incredible growth streak. There is indeed risk from its shrinking margins, but it may be an AI stock worth taking a chance on right now.
NYSE: SNOW
Key Data Points
2. Snowflake
Data storage company Snowflake has been struggling in 2024 as it posted unimpressive results, and investors have been bearish since the company's CEO unexpectedly retired earlier in the year. It also didn't help the company was involved in a big data breach, which impacted many large customers. Down more than 40% year to date, Snowflake's decline has persisted since shares peaked in late 2021.
For Snowflake to turn things around, it needs to deliver better numbers, particularly on the bottom line. While the company has been growing its business, that's not so encouraging when its losses have also been getting bigger. Through the first two quarters this year, Snowflake's operating loss grew 26% year over year to $703.9 million, nearly matching its 31% top-line growth over the same period. And to make matters worse, management reduced its margin guidance for full-year fiscal 2025.
Until Snowflake can show there's hope of profitability in the future, I'd avoid the stock.
NASDAQ: SOUN
Key Data Points
3. SoundHound AI
Shares of SoundHound AI took off early in the year as investors learned Nvidia had invested in the company. While the stock has leveled off in recent months, it's still up more than 130% year to date, even after declining 52% from its high of $10.25.
SoundHound's voice AI technology can help restaurants take orders and follow voice commands. While the business is growing, competition in this space is intense, and its numbers may not be high enough to suggest its share of the market is all that big.
In the second quarter, the company's revenue rose 54% to $13.5 million, but its net loss ballooned 60% to $37.3 million.
There's still a fair bit of uncertainty around SoundHound AI, and it's arguably the riskiest pick on this list given its sky-high valuation. I'd avoid it despite the sell-off.
