Overlooked SoundHound AI's Rise? My Suggested Top Artificial Intelligence (AI) Stock for Long-term Investment
Overlooked SoundHound AI's Rise? My Suggested Top Artificial Intelligence (AI) Stock for Long-term Investment
SoundHound AI has been one of the most sizzling artificial intelligence (AI) investments in 2024, boasting impressive gains of 936%, primarily due to several favourable circumstances such as its remarkable expansion, an investment from AI pioneer Nvidia, and recent optimistic evaluations from Wall Street analysts who believe this voice AI solutions provider could be a major player in the future.
The positive aspect is that SoundHound AI has been thriving at an exceptional rate and appears to be making the most of the substantial market potential available in the voice AI solutions sector by cultivating a strong clientele. However, the downside is that the stock is quite costly at the moment after its impressive surge in 2024.
It currently trades at 109 times sales. For comparison, AI leader Nvidia has a price-to-sales ratio of 31 despite its excellent growth in recent periods and its dominant position in the AI chip market. Therefore, investors may want to consider other options if they wish to join the AI movement.
Advanced Micro Devices (AMD 0.65%) is one such option that investors might consider purchasing right now to capitalize on the AI boom. Here are some reasons why AMD could be one of the best AI stocks to buy leading up to the new year.
A potential turnaround might be on the horizon for AMD in 2025
AMD stock has underperformed the market in the past year, losing 16% of its value while the broader PHLX Semiconductor Sector index experienced a 20% gain over the same period. AMD's weak presence in the AI chip market is partly responsible for its underperformance.
In fact, the chipmaker anticipates selling just $5 billion worth of AI graphics processing units (GPUs) used in data centers. For comparison, competitor Nvidia's revenue from the data center business amounted to a record $30.8 billion in the previous quarter, rising 112% from the prior year's period. However, AMD's promising developments in its AI chip business should not be disregarded.
The company's data center revenue increased 122% year over year in the third quarter of 2024 to $3.5 billion, fueled by the rising sales of its AI GPUs and server processors. It's also worth noting that AMD has steadily increased its data center GPU sales forecast throughout 2024. At the start of the year, it predicted selling just $2 billion worth of data center GPUs. So, the consistent increase in the company's sales forecast indicates that it is gradually gaining ground in this market.
The good news for AMD investors is that its data center GPU sales could continue to grow robustly in 2025 due to strong demand and an improving supply chain. On its October 2024 earnings conference call, AMD CEO Lisa Su mentioned that the company has "planned for significant growth" in its AI chip supply for 2025.
In fact, AMD's foundry partner, Taiwan Semiconductor Manufacturing, is reportedly set to double its advanced chip packaging capacity by the end of 2025. Although Nvidia is said to have secured 60% of TSMC's advanced chip packaging for 2025, it still means that AMD can anticipate a notable increase in AI chip production next year, resulting in further growth in its data center revenue.
Importantly, AMD doesn't need to outperform Nvidia to drive substantial revenue and earnings growth. After all, AMD management anticipates the AI accelerator market to reach $500 billion in revenue in 2028. So, even if Nvidia remains the market leader and AMD manages to capture even a 10% share of this market over the next three years, its data center GPU revenue could increase tenfold from 2024 levels.
Moreover, there is an additional AI-related catalyst for AMD in the form of the personal computer (PC) market. Global AI PC shipments are expected to hit 114 million units in 2025, up from an estimated 43 million in 2024, according to Gartner, and AMD is well-positioned to take advantage of this growth. According to Su, "HP and Lenovo are on track to more than triple the number of Ryzen AI Pro platforms they offer in 2024, and we expect to have more than 100 Ryzen AI Pro commercial platforms in the market next year, placing us in a strong position for market share gains as businesses refresh the hundreds of millions of Windows 10 PCs that will no longer receive Microsoft technical support starting in 2025."
All this explains why analysts are forecasting a substantial turnaround in AMD's financial performance next year.
Stronger growth and an attractive valuation make the stock an appealing investment
Analysts are predicting a 13% increase in AMD's revenue to $25.6 billion in 2024, as well as a 26% increase in its bottom line to $3.33 per share. The following chart clearly shows a significant acceleration in AMD's growth is expected in 2025.
The stock is currently trading at 25 times forward earnings, which is a lower multiple than the tech-heavy Nasdaq-100 index's earnings multiple of 33 (using the index as a proxy for tech stocks). Assuming AMD trades at a 30 times earnings multiple after a year and achieves $5.10 per share in earnings in 2025, its stock price could rise to $153. That would represent a 25% increase from current levels.
Sure thing, buddy! If AMD can crank out better financials and scrape up some extra profits, they might just catch the market's attention and earn a sweeter valuation. That's why folks on the hunt for an artificial intelligence stock that's reasonably priced and has the chops to dish out strong returns in 2025 should give AMD a good once-over. Skipping over pricier options like SoundHound could be a smart move.
Despite AMD's underperformance in the past year, its promising developments in the AI chip business are worth noting. The company's data center revenue increased significantly in 2024 due to rising sales of AI GPUs and server processors, and its AI chip sales forecast has consistently increased throughout the year. With a potential for robust growth in 2025 due to strong demand and an improving supply chain, AMD's stock could become an attractive investment opportunity for those looking for a reasonably priced AI stock with strong potential returns.
In this context, investors might want to consider the value of diversifying their portfolio by investing in AMD, as it offers a potential turnaround and a lower price-to-earnings ratio compared to some other AI stocks, such as SoundHound, which currently trades at a much higher price-to-sales ratio.