The Rise of Artificial Intelligence in Investment
Artificial intelligence (AI) has become a hot topic not only on Wall Street but also on Main Street as more businesses adopt AI solutions at an accelerated pace. Open AI’s ChatGPT has played a pivotal role in revolutionizing search and query processes. Simultaneously, Nvidia‘s phenomenal growth has significantly contributed to the recent highs of the Nasdaq Composite and S&P 500.
With the vast scope of AI, investors have numerous options ranging from tech research firms like Gartner to integrated software developers such as Microsoft with its Copilot, and data center memory suppliers like Micron Technology.
For those with a few thousand dollars to invest—whether in retirement accounts or savings—this article offers insights into two contrasting companies that may yield long-term profits.
Spotlight on SoundHound AI
Given the challenges posed by rising costs and workforce shortages, many fast-casual and drive-thru restaurants are exploring innovative alternatives. Additionally, automakers are on the hunt for next-generation conversational intelligence. SoundHound’s voice recognition software caters to numerous familiar brands, including White Castle, Jersey Mike’s, Stellantis, and Honda.
Previously, I expressed concerns regarding SoundHound AI (NASDAQ: SOUN) when its cash balance plummeted to $10 million against $35 million in debt at the end of 2022. Such a scenario made it challenging for an unprofitable company to sustain growth.
However, recent management efforts have turned the tide, resulting in a cash balance of $200 million with no outstanding debt, although at the cost of substantially increasing share counts.
While the increase in share counts poses challenges for existing shareholders, the dilution should significantly decrease now that the company stands on a firmer footing.
Even though SoundHound’s stock trades at 26 times sales—a lofty ratio for a company with negative cash flow—the expected revenue growth through 2025 may adjust this valuation favorably. Predictions estimate revenue growth from $80 million in 2024 to $150 million the following year, changing the price-to-sales ratio to a more attractive 12.5.
SoundHound presents a riskier investment given its smaller size but offers significant growth potential in nearly untouched markets such as voice-enabled smart technology and retail.
Amazon: A Power Player in AI
In contrast, Amazon (NASDAQ: AMZN), with a market capitalization approximately 1,000 times that of SoundHound, serves as a critical driver in the AI landscape. The demand for data has skyrocketed, and as the leading provider, Amazon Web Services (AWS) is pivotal in supporting data-intensive AI applications.
The AWS division accounted for 18% of Amazon’s total revenue in Q2 2024, a rise from 16% the previous year, and its operating margins far surpass those of the overall company, showcasing AWS’s profitability.
Furthermore, Amazon’s endeavors in the AI space include initiatives such as Amazon Bedrock—a platform for customizable foundational models—adding to their strength in the evolving AI field.
Despite below-average trading metrics concerning earnings and cash flow, Amazon’s substantial service revenue growth should intrigue investors, signaling the vast potential in AI.
Conclusion: Seizing the AI Opportunity
Investors must carefully consider their risk appetite. For those willing to engage with higher-risk investments, SoundHound can afford potential explosive growth, while Amazon serves as a more stable option. Balancing investment portfolios between the two could leverage the opportunities presented by the AI revolution.
As the industry continues to evolve, early positions in AI technology could prove lucrative. Investors who seek to navigate this rapidly changing landscape should stay informed and act quickly to seize potential investment opportunities that align with their financial goals.
