Demand for artificial intelligence (AI) technologies has been rising like never before. Companies across industries are developing and adopting cutting-edge AI technologies and integrating them into their core offerings, to improve productivity and enhance cost efficiencies. Considering its transformative potential, it is not surprising that AI has also emerged as a major investment trend in the stock market.
However, not all AI stocks can generate lasting wealth. Investors must focus mainly on AI-powered stocks with sustainable competitive advantages in their respective market niches and rapidly improving financials. Two innovative AI companies, SoundHound AI (NASDAQ: SOUN) and Symbotic (NASDAQ: SYM), fit the bill. Here's why select analysts may see huge growth potential in these stocks.
SoundHound AI
As a prominent AI player focused on speech recognition, SoundHound has seen its share price soar by nearly 128% in 2024. However, the stock may rally even more in the coming months, thanks to its customizable AI-powered voice and speech solutions and strong go-to-market strategy. The company is building a strong presence in the customer service, automotive, and quick-service restaurant markets.
SoundHound AI has also introduced a multilingual, multimodal model called Polaris, which is helping increase accuracy, speed up response times, reduce cost, and improve overall user experience for its voice agents.
One of the bullish target price estimates for SoundHound AI's share prices is from Gil Luria from D.A. Davidson of $9.50, implying an upside of almost 96% from its closing price on Aug. 29. While this target price may seem overly optimistic, investor enthusiasm for the stock is well justified.
SoundHound AI came out with strong second-quarter results, with revenue and earnings surpassing consensus estimates. Cumulative subscriptions and backlogs grew by almost 100% year over year to $723 million at the end of the second quarter.
The company also boasts an impressive customer list, including such names as Planet Fitness, Honda Motor, Hyundai Motor, and Stellantis. The company's success in upselling to many of the existing customers and adding new customers has translated into increased fiscal 2024 revenue guidance from around $71 million to over $80 million. SoundHound AI expects annual revenue to be above $150 million in fiscal 2025.
Investors are also impressed with the company's strategic acquisition of conversational and generative AI player Amelia. The deal is expected to expand SoundHound's presence in the customer service sector across verticals such as retail, ticket companies, financial services, hospitality, insurance, and healthcare. SoundHound expects Amelia's deal to become earnings accretive by the second half of 2025. Furthermore, the acquisition of Allset will open new opportunities for the company in the voice commerce sector.
Although SoundHound AI is not yet profitable, the company's financials seem to be moving in the right direction. The company ended the second quarter with $201 million in cash and no debt -- implying that it has significant flexibility to invest in upcoming voice technologies and go-to-market strategies.
Management expects SoundHound AI's gross margin to be 70%-plus and earnings before interest and taxes (EBIT) margin to be 30%-plus in the long run. All these characteristics make the company well-suited to capture a significant share of the global conversational AI market, estimated to grow from $13.2 billion in 2024 to $49.9 billion in 2030.
Against this backdrop, considering its superior technological capabilities, strong customer base, and impressive financials, SoundHound AI seems a compelling pick now.
Symbotic
Warehouse automation technology specialist Symbotic came out with mixed results for the third quarter of its fiscal 2024 (ended June 29). While the company's revenue performance surpassed analyst expectations, investors were disappointed with its unexpected losses in the third quarter attributed to increasing labor costs and construction delays. The company's fourth-quarter guidance also marks a significant deceleration in revenue growth rate compared to recent performance.
Despite these headwinds, Nicole Deblase from Deutsche Bank has maintained a buy rating for the stock and increased the target price from $58 to $59, which implies an upside potential of just over 200%. The analyst is impressed with the company's proactive approach to resolving operational challenges, including bringing the engineering procurement construction (EPC) function back in-house to reduce costs and improve the speed of planning, implementation, and project management. Deblase also highlights the high possibility of revenue and margin acceleration for Symbotic in the coming quarters.
Although many analysts and investors may consider the target price excessive in the current environment, Symbotic's long-term growth potential cannot be ignored. The company had a large committed contract backlog of $22.8 billion at the end of the third quarter, implying the strong demand for its warehouse automation systems. Subsequently, the company expects revenue growth to accelerate in the first quarter of fiscal 2025, after a temporary slowdown in the fourth quarter of fiscal 2024.
To further enhance the performance of its warehouse automation technology, Symbotic has retrofitted all of its SymBots (a scalable, energy-efficient warehouse system for performing repetitive and mundane tasks) with a new advanced sensor array. The company is also redesigning minibots for BreakPack solution, to improve efficiency and speed of handling smaller quantities of items or smaller and intricate items at the warehouse.
The company has also started the first deployment for its warehouse-as-a-service joint venture with SoftBank called GreenBox, as a part of an exclusive $7.5 billion purchase contract.
Symbotic's shares are trading at 5.9 times trailing-12-month sales, far lower than their historical three-year average price-to-sales (P/S) ratio of 13.2. Considering its bargain valuation and robust technological capabilities, the stock seems a smart pick now.
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Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Planet Fitness. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.
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