The artificial intelligence (AI) market is exploding. Just take a look at recent estimates by the United Nations. By 2033, the U.N. sees the size of the global AI market hitting $4.8 trillion, up from just $183 billion in 2023.
Want to make sure your portfolio takes advantage? The two AI stocks below are your best bets.
NASDAQ: NVDA
Key Data Points
Every AI investor should own this stock
If you want to profit by investing in AI stocks, start with Nvidia (NVDA +0.20%). Even if you think you already know everything there is to know about Nvidia, you may not fully appreciate its biggest competitive advantage today: its CUDA developer suite.
Most AI investors already know that Nvidia is a dominant producer of AI graphics processing units (GPUs) worldwide. These GPUs are what power nearly every AI application and service out there. Estimates peg the company with a 70% to 95% market share. With the AI chip market expected to surpass $400 billion in annual sales over the next five years, Nvidia has a dominant position in a lucrative segment of the AI market that should continue to see heavy growth for not only the next five years, but the next several decades.
According to experts, Nvidia's chips are superior versus most competing options today. But competition is mounting. While the AI chip maker is taking off, who is to say that Nvidia will continue to be at the center of this revolution? Once you understand Nvidia's CUDA developer suite, you'll appreciate how likely it is that Nvidia's leading position won't be going away any time soon even if the performance of competing chips continues to add pressure over time.
CUDA stands for Compute Unified Device Architecture. Released in 2006, it essentially allows developers to customize its chips for specific applications, creating performance benefits far beyond standard chip offerings. This not only makes Nvidia's chips more competitive from a performance standpoint, but also entrenches customers within its software architecture. In a nutshell, it creates a sort of vendor lock-in, with customers custom-building applications around Nvidia's hardware and software offerings. Developers who build AI applications with CUDA become deeply dependent on Nvidia GPUs, making it challenging and expensive to transition to a different vendor.
Despite its dominance in AI, Nvidia shares aren't as expensive as you'd expect, trading at just 25 times forward earnings.
NVDA PE Ratio data by YCharts.
This AI stock has even more growth potential than Nvidia
Want even more growth potential than Nvidia? Check out SoundHound AI (SOUN 3.52%).
While Nvidia has a $2.7 trillion valuation, SoundHound has a market capitalization of just $4 billion. So when it comes to raw upside potential based on scale alone, SoundHound wins big. And while its end markets don't provide as much absolute growth as Nvidia's, there's still plenty of room for SoundHound to be an incredible long-term investment.
SoundHound's primary business is providing AI solutions for use cases involving sound. Think drive-through windows powered by AI agents, or perhaps a car manufacturer who adds virtual assistants to its offerings, helping drivers navigate to a new destination or inquire about the vehicle's maintenance history.
SOUN PS Ratio data by YCharts.
SoundHound stock is outrageously expensive at 39 times sales. But revenues are expected to nearly double this year, with total sales still under $100 million. Considering the voice AI market is expected to surpass $40 billion in value by 2032, there should be plenty of room for SoundHound to justify its premium valuation. Just expect plenty of volatility along the way.
For most investors, Nvidia shares are enough to expose your portfolio to the AI revolution. But for those looking to add even more growth potential, SoundHound looks like a reasonable addition.
