With every disruptive technology that comes along, there are winners and losers, and such is the case in the artificial intelligence (AI) market. The robust demand that some of these companies are experiencing suggests that significant wealth will be created from AI adoption. Here are two AI stocks with the potential to be on the winning side of the AI revolution, and investors might want to buy and hold onto them for monster returns.
1. Soundhound AI: One promising small-cap AI stock to consider is Soundhound AI (SOUN). Many businesses, particularly in the restaurant and auto industries, are increasingly using its conversational voice AI technology. Tasks like taking orders at restaurants and giving commands while driving are poised to benefit greatly from AI advancements. Soundhound's second-quarter results speak volumes: revenue grew 54% over the year-ago quarter, with cumulative subscriptions and bookings backlogs nearly doubling to $723 million. While restaurants are a significant growth driver, Soundhound is also gaining traction in the auto industry. Several European brands, including Alfa Romeo and Peugeot, are starting production with Soundhound Chat AI. Additionally, a U.S. electric vehicle manufacturer will soon integrate Soundhound's voice assistance technology across its entire fleet.
Soundhound is actively pursuing new market opportunities. Recently, the company acquired enterprise software company Amelia, which extends its growth potential to industries like retail and financial services. Amelia is expected to contribute over $45 million in recurring software revenue, and management anticipates the acquisition will benefit profitability by 2025. Although Soundhound has yet to turn a profit, its strategy to generate revenue from product royalties and subscriptions should make the business very profitable in the future. By the time it achieves profitability, the stock could be trading significantly higher.
2. HubSpot: Another AI growth stock to buy is HubSpot (HUBS). The company offers a subscription-based platform powered by AI that centralizes all of a company's data, making it more efficient for teams to gain insights and act on sales leads. HubSpot has consistently grown its revenue at rates exceeding 20% in recent years, despite being a relatively small company in a large and expanding market. HubSpot ended the second quarter with 228,000 customers, bringing its trailing revenue to $2.4 billion. In an $80 billion market, this indicates its long-term potential to deliver massive returns to shareholders.
Currently, HubSpot's stock is an appealing buy after a recent drop from its highs. Some investors are concerned about slowing growth in a challenging macroeconomic environment. Analysts expect full-year revenue to increase by 18% year over year, which is slower than its previous pace. Nonetheless, HubSpot is projected to sustain high growth rates over the long term. The company leverages a freemium pricing model, allowing small businesses to easily start using its product. Over time, the strategy encourages businesses to upgrade to premium services, pointing to significant future growth opportunities. HubSpot's annual revenue trajectory is similar to that of industry leader Salesforce during its early growth years, a stock that delivered a 5,600% return to shareholders. With a current price-to-sales ratio of 10.5, comparable to Salesforce's valuation 20 years ago, HubSpot aims to deliver market-beating returns in line with its future revenue growth.
