SoundHound AI has been one of many hottest synthetic intelligence (AI) shares in the marketplace in 2024, clocking gorgeous positive factors of 936% as of this writing on the again of a number of favorable developments resembling its excellent development, an funding from AI pioneer Nvidia, and optimistic protection on Wall Avenue of late from analysts who consider that this voice AI options supplier may very well be a giant winner in the long term.
The great half is that SoundHound AI has been rising at an unbelievable tempo and appears to be taking advantage of the large addressable alternative on provide within the voice AI options market by building a solid customer base. Nevertheless, the dangerous half is that the inventory is extraordinarily costly proper now following its outstanding surge in 2024.
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It’s now buying and selling at 109 instances gross sales. For comparability, AI bellwether Nvidia has a price-to-sales ratio of 31 even after the excellent development that it has been clocking in current quarters and the dominant place that it enjoys within the AI chip market. So, buyers would do effectively to search for alternate options to SoundHound in the event that they want to soar on to the AI bandwagon.
Superior Micro Units (NASDAQ: AMD) is one such various that buyers can contemplate shopping for proper now to profit from the proliferation of AI. Listed here are a number of the causes AMD may very well be top-of-the-line AI shares to purchase heading into the brand new 12 months.
A strong turnaround may very well be within the playing cards for AMD in 2025
AMD inventory has underperformed the market previously 12 months, dropping 16% of its worth whereas the broader PHLX Semiconductor Sector index has clocked 20% positive factors over the identical interval. AMD’s weak affect within the AI chip market is among the key causes behind its underperformance.
In spite of everything, the chipmaker expects to promote simply $5 billion price of AI graphics processing models (GPUs) which are deployed in information facilities. For comparability, rival Nvidia’s income from the info middle enterprise got here in at a file $30.8 billion within the earlier quarter, rising 112% from the year-ago interval. Nevertheless, the silver linings in AMD’s AI chip enterprise shouldn’t be ignored.
The corporate’s information middle income elevated 122% 12 months over 12 months within the third quarter of 2024 to $3.5 billion, pushed by the rising gross sales of its AI GPUs and server processors. One other factor price noting right here is that AMD has saved rising its information middle GPU gross sales forecast all through 2024. It was initially hoping to promote simply $2 billion price of knowledge middle GPUs firstly of the 12 months. So, the constant improve within the firm’s gross sales forecast signifies that it’s steadily gaining traction on this market.
The excellent news for AMD buyers is that its information middle GPU gross sales might continue to grow at a pleasant clip in 2025 as effectively, pushed by robust demand and an enhancing provide chain. On its October 2024 earnings conference call, AMD CEO Lisa Su identified that the corporate has “deliberate for vital development” in its AI chip provide for 2025.
In spite of everything, AMD’s foundry associate, Taiwan Semiconductor Manufacturing, is reportedly going to double its superior chip packaging capability by the tip of 2025. Though Nvidia has reportedly secured 60% of TSMC’s superior chip packaging for 2025, it nonetheless signifies that AMD can witness a pleasant soar in manufacturing of its AI chips subsequent 12 months, resulting in additional development in its information middle income.
Importantly, AMD would not must beat Nvidia to drive substantial development in its income and earnings. In spite of everything, AMD administration expects the AI accelerator market to hit $500 billion in income in 2028. So, even when Nvidia stays the dominant participant and AMD manages to eke out even a ten% share of this market over the subsequent three years, its information middle GPU income might develop tenfold from 2024 ranges.
Furthermore, there may be a further AI-related catalyst for AMD within the type of the private pc (PC) market. International AI PC shipments are anticipated to leap to 114 million models in 2025 from an estimated 43 million in 2024, based on Gartner, and AMD is effectively positioned to capitalize on this development. In line with Su, “HP and Lenovo are on observe to greater than triple the variety of Ryzen AI Professional platforms they provide in 2024, and we anticipate to have greater than 100 Ryzen AI Professional business platforms out there subsequent 12 months, positioning us effectively for share positive factors as companies refresh the a whole bunch of tens of millions of Home windows 10 PCs that can now not obtain Microsoft technical help beginning in 2025.”
All this explains why analysts are forecasting a sturdy turnaround in AMD’s monetary efficiency subsequent 12 months.
Stronger development and a gorgeous valuation make the inventory price shopping for
Analysts predict AMD’s income to extend 13% in 2024 to $25.6 billion, together with a 26% soar within the backside line to $3.33 per share. The next chart clearly reveals {that a} vital acceleration is anticipated in AMD’s development in 2025.
AMD Revenue Estimates for Next Fiscal Year information by YCharts
The inventory is presently buying and selling at 25 instances forward earnings, which is a reduction to the tech-laden Nasdaq-100 index’s earnings a number of of 33 (utilizing the index as a proxy for tech shares). Assuming AMD trades at even 30 instances earnings after a 12 months and achieves $5.10 per share in earnings in 2025, its inventory value might soar to $153. That may be a 25% soar from present ranges.
In fact, extra upside can’t be dominated out if AMD manages to ship stronger bottom-line development and the market decides to reward it with a better valuation because of this. That is why buyers seeking to purchase an AI stock that is buying and selling at an affordable valuation and has the potential to ship wholesome positive factors in 2025 ought to contemplate taking a more in-depth take a look at AMD as a substitute of expensively valued shares resembling SoundHound.
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*Inventory Advisor returns as of December 30, 2024
Harsh Chauhan has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Superior Micro Units, HP, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Idiot recommends Gartner and recommends the next choices: lengthy January 2026 $395 calls on Microsoft and quick January 2026 $405 calls on Microsoft. The Motley Idiot has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the writer and don’t essentially replicate these of Nasdaq, Inc.
