If you want to create huge upside potential for your portfolio, get familiar with the AI industry. According to data compiled by Statista, the AI market is already worth $184 billion. But by the end of the decade, its value will increase to an astounding $827 billion -- an average annual growth rate of nearly 30%!
How can you profit from this growth? The two AI stocks below have you covered.
NASDAQ: NVDA
Key Data Points
Get in on the ground floor of AI
Looking to bet on the rise of AI? Start with Nvidia (NVDA +1.73%).
There's an old saying: During a gold rush, sell shovels. The idea is that whether or not the gold rush amounts to anything concrete in terms of actual gold production, those who sell the shovels still profit. The same can be said today about Nvidia today when it comes to AI. Training and running AI models takes a huge amount of computing power. These complex, data-heavy tasks often require specialized chips based on high-end graphics processing units (GPUs).
Nvidia's AI accelerator GPUs are the best on the market right now. This reality is borne out in its market share numbers, with most estimates giving the company a 70% to 95% share of the AI chip market. Nvidia's dominance is also demonstrated by its pricing power. Gross margins for the company are around 76% -- a solid lead versus the competition, which is currently generating 40% to 50% gross margins.
NVDA Profit Margin data by YCharts
The AI spending craze fueling Nvidia's rise likely isn't a short-term phenomenon. Industry spending on AI infrastructure is expected to quadruple by the end of the decade, growing at a compound annual growth rate (CAGR) of nearly 30%. And to be sure, competition will grow fiercely in the years to come. But Nvidia has a strong lead, with the financial and reputational might to invest heavily in new products.
Intel and Advanced Micro Devices are contrarian AI hardware picks if you think Nvidia's market lead might dissipate over time. For now, however, Nvidia remains the undisputed leader for investors looking to bet directly on the rise of AI.
Take a swing at the next big AI stock
I love Nvidia stock. But with the company now valued at $3.3 trillion, it's unclear whether it can repeat its past success -- at least when it comes to stock price performance. I fully expect Nvidia's sales base to take off over the next decade. But the market has caught on to this growth potential, pricing the company at an astounding 35 times sales.
If you want to make the most money possible with AI stocks, you'll need to look at something smaller. SoundHound AI (SOUN 7.89%), for instance, is valued at just $1.9 billion, even though it's directly exposed to many of AI's biggest growth drivers. There's potentially more risk with this company than with Nvidia, but there's also the opportunity for significantly greater profit.
As its name suggests, SoundHound is involved in the voice and sound categories of AI. Anytime you interact with your devices with your voice -- say, asking your phone what song is currently playing, talking with your car about maintenance issues, ordering from a drive-thru window, or talking to a customer service representative on the phone -- SoundHound wants to be involved. Its AI technology can augment your experience in these situations while driving efficiencies for businesses regarding labor costs.
SoundHound's technology isn't new. The company has been around for decades, with a growing customer list that includes major automakers, global restaurant brands, and even a suite of technology companies. But the voice AI category will have stiff competition from Big Tech companies, nearly all of which are developing their own platforms.
Whether or not SoundHound will become a long-term winner is unclear. The company is still losing money, while its research and development budget -- which currently stands at just $56 million per year -- pales in comparison to what Big Tech is spending. But in return you get a stock directly exposed to AI tailwinds -- with proven technology -- at under a $2 billion market cap. There's plenty of risk to this story, but it's easy to imagine the company growing significantly in size should its technology and sales growth maintain its current trajectory.
