Artificial intelligence (AI) has become one of the most powerful growth drivers in the market, and while this growth is largely being led by megacap tech companies with deep pockets, there are smaller companies in the space that could also become big winners. While they carry more risk, their size and the opportunity in front of them make them potential millionaire-making stocks.
Let's look at three high-risk, high-reward stocks to buy now.
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1. SoundHound AI
SoundHound AI (SOUN 1.11%) is a small-cap stock that is going after one of the toughest problems in tech: making AI-powered voice assistants more useful and less frustrating. If you have ever had a conversation with Siri or Alexa that went nowhere, you know why this matters. SoundHound built its system from the ground up to process speech in real time to figure out what you mean, not just what you said. Its purchase of Amelia took it to the next level by adding deep conversational intelligence and getting it into fields with specific industry jargon, such as healthcare and financial services.
NASDAQ: SOUN
Key Data Points
Thus far, its solution has seen strong uptake. Last quarter, its revenue surged 217% to $42.7 million, and management says it will reach adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) profitability by the end of 2025. However, this could just be the start of a long runway of growth.
The company is looking to move beyond voice into AI agents, with the launch of Amelia 7.0. These new AI agents can actually take action on what users ask, and SoundHound even added real-time visual recognition so its agents can respond to both voice and image inputs. It's currently transitioning its 15 largest customers to the platform. While there are a lot of companies attacking the AI agent opportunity, it's easy to see why having AI agents that understand what you say can be vitally important.
If SoundHound can become a leader in voice-first AI agents, the stock has huge potential.
2. AppLovin
AppLovin (APP +6.83%) has turned itself into one of the fastest-growing AI companies out there by going all-in on AI adtech. It sold off its gaming business and put its focus on Axon 2.0, its AI engine that figures out which ads to show, how much to bid, and where to place them. The result has been explosive growth.
NASDAQ: APP
Key Data Points
Last quarter, its revenue surged 77% to $1.26 billion, while adjusted EBITDA nearly doubled to $1 billion, showing just how profitable its model has become as it scales. The stock has been on a tear, up more than 400% over the past year, but the company is still just scratching the surface. The company's success has largely been in gaming apps, but management is now testing Axon 2.0 in the e-commerce and web advertising markets. It's also launching a self-serve ad manager and expanding internationally. This opens up a much bigger market and could keep growth rolling for years.
Short-sellers have tried to challenge the story, but quarter after quarter, AppLovin keeps proving them wrong. If Axon 2.0 delivers outside of gaming as well as it has inside, this stock still has a lot more upside left.
3. GitLab
GitLab's (GTLB +0.84%) stock hasn't been a big winner like SoundHound and AppLovin; however, that doesn't mean the software-as-a-service (SaaS) company hasn't been executing. In fact, it's grown its revenue by between 25% to 35% year over year for eight straight quarters, including a 29% jump last quarter. Growth is coming from a combination of adding new customers and existing customers continuing to expand their usage. Its strength with existing customers could be seen last quarter when it posted 121% dollar-based net retention.
NASDAQ: GTLB
Key Data Points
While existing customers are upgrading their service tiers and adding AI add-ons, most of this growth continues to be from seat expansions. This is important because it counters the bearish argument that AI will lead to fewer coders and hurt GitLab's growth. However, the opposite has been true, with AI leading to increased software development and more developers using GitLab's platform.
Meanwhile, it also means that GitLab has a long runway to continue selling its AI tools to its existing customer base. Its Duo AI agent, which can suggest code and automate a lot of the repetitive work, has been seeing strong usage growth, but it's still very early. The company is also starting to shift to a hybrid seat-plus-usage pricing model to capture more value as its platform becomes more critical. This protects it from any potential reduction in coders, while also having the potential to be a huge growth driver as AI continues to lead to more software development.
GitLab has the feel of a growth stock that could keep compounding for years, although I wouldn't be surprised to see a cloud computing company look to eventually acquire it.
