The wealthiest 1% of Americans own nearly half of the stocks in the U.S, according to the Federal Reserve's data via The Motley Fool. By generation, 53.5% of all stocks were held by baby boomers, while Gen Xers and millennials only held 21.9% and 8.5%, respectively. Gen Z, which the Fed doesn't cover, might own even fewer stocks.
Meanwhile, the Gen Zers who actively invest are often associated with meme stocks, cryptocurrencies, and other speculative plays instead of blue-chip stocks. Those volatile investments might generate some stunning short-term gains, but it's undeniably tough to maintain that momentum over the long term.
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So if you're a Gen Zer who's looking for some promising growth stocks that have a real shot at consistently outperforming the market, you might want to check out a few oft-overlooked plays in the booming artificial intelligence (AI) market. Here are three AI stocks that might generate some big gains for younger investors who still have decades to go before they retire: Navitas Semiconductor (NVTS 11.74%), SoundHound AI (SOUN -1.38%), and Datadog (DDOG 4.49%).
1. Navitas Semiconductor
Navitas produces gallium nitride (GaN) and silicon carbide (SiC) chips, which can operate at higher temperatures and voltages than traditional silicon chips. These chips are often used in laptop chargers, EV chargers, solar inverters, industrial motor drives, and data center power supplies.
In the past, Navitas derived most of its growth from the electric vehicle, solar, and industrial markets. But this May, Nvidia (NVDA 2.05%) chose Navitas' GaN and SiC chips to process its AI workloads at its own next-gen data centers. Navitas doesn't expect to generate any revenue from that massive deal until 2027, but it could convince more enterprise customers to install its resilient chips in their AI-oriented data centers.
Analysts expect Navitas' revenue to drop 42% in 2025 as its core EV, solar, and industrial markets remain weak and it laps the end of a partnership with a key distributor. But from 2025 to 2027, analysts expect its revenue to grow at a CAGR of 40% as it narrows its net losses. It isn't cheap at 26 times next year's sales, but its growth could accelerate significantly over the next decade as more companies integrate GaN and SiC chips into their devices.
2. SoundHound AI
SoundHound AI develops AI-powered audio and voice recognition tools. Its namesake app can identify songs with just a few seconds of audio, but most of its growth comes from Houndify -- a developer-oriented platform that helps companies create their own voice recognition services that don't share their customers' data with big tech companies.
SoundHound serves a wide range of customers across the auto, restaurant, customer service, retail, hospitality, healthcare, financial, and smart device industries. It expanded its ecosystem by acquiring the AI restaurant services provider SYNQ3, the online food ordering platform Allset, and the conversational AI company Amelia over the past two years.
From 2024 to 2027, analysts expect SoundHound's revenue to grow at a CAGR of 47% as its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) turn positive by the final year. It might seem expensive at 31 times next year's sales, but it's poised to profit from the surging demand for AI-powered voice services. If you expect to talk to more AI agents and chatbots than real humans in the future, then SoundHound might be a great long-term investment.
3. Datadog
Datadog's platform helps IT professionals spot problems across large organizations by pulling real-time data from a wide range of fragmented computing platforms. Instead of tracking down those issues individually, it unifies all of that data on its diagnostic dashboards. Its generative AI assistant, Bits AI, further simplifies that process.
Datadog serves more than 30,000 customers worldwide, including companies like Samsung, Nasdaq, Shell, Autodesk, and Toyota. That makes it a top play on the secular expansion of the global data observability market, which Grand View Research expects to grow at a CAGR of 10.7% from 2024 to 2030.
From 2024 to 2027, analysts expect Datadog's revenue and adjusted EBITDA to grow at a CAGR of 22% and 19%, respectively. It still looks reasonably valued at 11 times next year's sales and 45 times its adjusted EBITDA. If you expect more companies to realize that they're running too many types of software across too many computing platforms, then Datadog could be a great way to profit from the destruction of those silos and the unification of those computing platforms under a single diagnostic umbrella.
