If you're looking for stocks with huge return potential, you can increase your chances of success by focusing on companies that operate in a rapidly expanding industry. Great investments are usually made by jumping early on fast-growing companies that have enormous expansion potential for their particular sector.
Here are two promising candidates that could potentially grow their share prices 10-fold in the coming years.
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1. SoundHound AI
Share prices of SoundHound AI (SOUN -0.11%) have been volatile, At the time of this writing, the stock is up 342% since the end of 2023. This follows growing demand for the company's conversational voice technology powered by artificial intelligence (AI).
SoundHound's revenue more than doubled year over year in the first quarter. This comes after last year's acquisition of Amelia, which expanded SoundHound's technology to customer services across multiple industries, including retail and healthcare.
AI is having a major impact on how people order at restaurants and interact with in-car services -- two of SoundHound's biggest markets. As AI's capabilities grow exponentially, demand is surging for SoundHound's voice AI. Over 1,000 new restaurant locations went live with SoundHound in Q1 -- a 10-fold increase over a year ago.
The main negative for the company is that it is not earning a profit. In Q1, it reported a non-GAAP (generally accepted accounting principles) loss of $22 million, which is quite large on just $29 million of quarterly revenue. SoundHound generates revenue from product royalties, service subscriptions, and ads on its music identification app. These can be profitable revenue streams, so I wouldn't be too concerned about SoundHound's profitability at this early stage of growth.
Keep in mind that SoundHound is not using off-the-shelf AI. Its AI is proprietary, based on 20 years of investment using data from real user interactions. SoundHound also has a strong balance sheet, with $246 million of cash and no debt.
The company's growth shows huge market potential for its technology. The AI voice generator market is growing exponentially, expected to increase from $3 billion in 2024 to over $20 billion by 2030, according to MarketsandMarkets.
SoundHound's market cap is currently $3.76 billion, with its share price around $9.40. Its market cap has to increase to $37.6 billion to deliver a 10-fold return to investors. This is possible within the next 10 years, considering SoundHound's rapid growth and the long-term trends supporting more AI integration across the economy.
Image source: Getty Images.
2. Duolingo
Online language learning is another fast-growing market that is benefiting from the use of AI. Duolingo (DUOL -2.12%) started in 2012 and is currently the top-grossing mobile learning app in Alphabet's Google Play and the Apple App Store. The company's rapid growth has sent the stock up 241% since its initial public offering in 2021.
Duolingo makes it easy and fun to learn new languages, and it's attracting a lot of people. It had 130 million monthly active users in Q1, representing a 33% year-over-year increase. A high percentage of these users are engaging with the app every day, with the company reporting 46.6 million daily actives last quarter, for an increase of 49% year over year.
The company uses the standard mobile app business model. Users can download the app for free and then pay for premium content. Duolingo had over 10 million paying users last quarter. This generated $230 million of revenue last quarter, up 38% year over year, while also reporting a healthy profit of $35 million.
The online language learning market is expected to grow at an annualized rate of 21% through 2030 to reach $44 billion, according to Mordor Intelligence. AI will be a catalyst for growth, given the added personalization and other enhancements AI brings to the table. Duolingo says its Max subscription service, which brings AI-powered features to the learning experience, is one of its biggest opportunities.
However, Duolingo also offers courses in math and music, indicating its long-term opportunity extends well beyond language learning. Content expansion, including the recent launch of chess, is a key part of the company's growth strategy.
Duolingo's market cap is currently $21.8 billion at the current $480 share price. For the company to be worth $210 billion and deliver a 10-fold return to investors in 10 years, Duolingo needs to maintain annualized revenue growth of 25% and trade at the same 28x price-to-sales multiple. This implies growth that is marginally higher than the online language learning market.
Duolingo's 40%-plus current revenue growth already puts it ahead of the curve. Moreover, its content expansion strategy positions it to grow faster than the market, making it a compelling growth stock to hold for multibagger returns.
