Enthusiasm for artificial intelligence (AI) drove shares of Super microcomputer (NASDAQ:SMCI) And SoundHound AI (NASDAQ:SOUN) increased by 506% and 96% respectively over the past year. But both stocks are still rated “Buy” on Wall Street, and some analysts are predicting big gains for shareholders.
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Ananda Baruah has set a price target of $1,500 per share for Super Micro Computer, representing an 81% increase from the current price of $830 per share.
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DA Davidson’s Gil Luria set a price target of $9.50 per share for SoundHound AI, representing an 83% increase from the current price of $5.20 per share.
Investors should never rely too heavily on price targets, especially those of individual analysts. But Supermicro and SoundHound deserve further consideration based on their outperformance.
Here’s what investors should know:
1. Super microcomputer
Super Micro Computer develops and produces accelerated computing platforms that include server and storage systems. The company sources chips, memory and other hardware from partners such as Nvidia And Intel. Its computing platforms are specifically designed for enterprise and cloud data centers and Supermicro is an early leader in the artificial intelligence (AI) server market, according to Samik Chatterjee. JPMorgan Chase.
The success in the AI server market is due to the modular approach to development, which offers two major advantages. First, Supermicro can bring servers equipped with the latest chips to market faster than its competitors. Second, these building blocks come together in countless combinations, giving Supermicro the broadest and most comprehensive portfolio of advanced server and storage solutions in the IT industry.
Supermicro reported solid financial results in its fiscal third quarter (ended March 31), but shares plunged 15% as the company missed consensus revenue estimates. To put it more precisely, sales rose 200% to $3.85 billion, but Wall Street was expecting sales of $3.95 billion. Still, investors may have overreacted, considering non-GAAP net income still rose 308% to $6.65 per diluted share, well above the $5.78 expected by analysts -dollars per diluted share.
Additionally, CEO Charles Liang told analysts on the earnings call that Supermicro would have shipped more product during the quarter had it not experienced supply shortages. The company also raised its full-year outlook so that the midpoint of the forecast now implies 110% revenue growth in fiscal 2024. This beats analysts’ consensus estimate of a 106% increase in revenue to $14.6 billion.
According to JPMorgan, the AI server market will grow 47% annually between 2023 and 2028. Meanwhile, Wall Street analysts expect Supermicro to grow earnings per share at 47% annually over the next three to five years. Based on this consensus estimate, the company’s current valuation of 46.7 times earnings appears reasonable. Supermicro shareholders shouldn’t expect an 81% gain next year, but investors should consider buying a small position today.
2. SoundHound AI
SoundHound offers conversational intelligence solutions, also known as artificial voice intelligence (AI) products, that can be integrated into all types of smart devices. Its voice AI technology has applications in automobile manufacturing, food and beverage, and consumer electronics industries. The customer base includes, for example, well-known brands such as Stellar, toastAnd Qualcomm.
SoundHound is a relatively small company (its market cap is under $2 billion) that competes with much larger companies such as: B. competes Amazon And Microsoft. However, management says it has better technology than its competitors and that its platform offers brands more flexibility to develop differentiated and tailored voice AI solutions. DA Davidson’s Gil Luria cited this technology-based competitive advantage as a reason for his $9.50 per share price target.
SoundHound is growing like wildfire. Revenue rose 80% to $17 million in the fourth quarter, and the company reported a narrower GAAP loss of $0.07 per diluted share, compared to $0.15 per diluted share a year ago. This progress is encouraging, but SoundHound may need to issue equity or debt securities in the future. The company burned through $68 million last year and currently has just $95 million of cash on its balance sheet.
SoundHound recently completed its $25 million acquisition of SYNQ3 Restaurant Solutions, a conversational intelligence specialist for food and beverage brands. According to CEO Keyvan Mohajer, this deal makes SoundHound the largest provider of voice AI technology for restaurants and expands its market reach by an order of magnitude.
Looking ahead, Juniper Research estimates that voice AI spending will reach $160 billion by 2026, driven by growing demand across numerous industries. Meanwhile, Wall Street analysts expect SoundHound to grow revenue by 50% annually over the next two years. This consensus estimate makes the current valuation of 26 times sales seem bearable, although shares certainly aren’t cheap.
While I doubt shareholders will see an 83% gain next year, investors should still consider buying a very small position, provided they understand the risks, particularly the risks related to competition. SoundHound may have better voice AI technology, but companies like Amazon and Microsoft have far more resources.
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions at Amazon and Nvidia. The Motley Fool holds positions in and recommends Amazon, JPMorgan Chase, Microsoft, Nvidia, Qualcomm and Toast. The Motley Fool recommends Intel and Stellantis and recommends the following options: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft and short May 2024 calls above $47 on Intel. The Motley Fool has a disclosure policy.
According to certain Wall Street analysts, you should buy 2 red-hot artificial intelligence (AI) stocks before they skyrocket 81% and 83%, respectively. The book was originally published by The Motley Fool