The Next Stock Superstar? 3 AI Stocks the Gurus Are Buying Hand Over Fist (2024)

The run-up in valuation for Nvidia (NASDAQ:NVDA), Microsoft (NASDAQ:MSFT) and Palantir Technologies (NYSE:PLTR) last year meant artificial intelligence (AI) was just about the only thing anyone was discussing. The release of ChatGPT in 2022 set the world on fire with its potential applications in business and everyday use. Demand for AI tools took off.

That’s continuing into 2024, and with good reason. We’ve only just started scratching the surface of the opportunities AI unlocks. There is a long runway to go. Of course, there is a dark side to AI and headwinds too. But money is still pouring into the market, and the following three companies are among the best AI stocks to buy.

Advanced Micro Devices (AMD)

The Next Stock Superstar? 3 AI Stocks the Gurus Are Buying Hand Over Fist (1)

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Nvidia sucked most of the oxygen out of the room when it came to AI chips. Advanced Micro Devices (NASDAQ:AMD), however, is making a name for itself too. The chipmaker recently unveiled its MI300X AI chip, which offers better performance than Nvidia’s popular H100 chip. It’s already lining up a stellar clientele list. Both Meta Platforms (NASDAQ:META) and Microsoft announced they would buy AMD’s chip. The latter will use it in its Azure cloud services business.

Although the chipmaker didn’t announce a price, it’s expected to be cheaper than the $40,000 Nvidia reportedly charges for its H100. CEO Lisa Su said it would have to cost less and work better if AMD wanted to lure customers to its chips. AMD also beefed up its software platform and application interface ROCm to provide a better user experience when using the AI chips.

Mario Gabelli of GAMCO Investors (OTCMKTS:GAMI) boosted his holdings of AMD stock by 42% in the third quarter. He paid an average of around $108 a share for the stock, giving him a 55% gain already. He stands to reap even greater gains because of the exponential growth expected to come from AI.

Wall Street forecasts Advanced Micro Devices will grow earnings at 13% a year for the next five years. AMD has a 47x forward price-to-earnings ratio.

ASML Holding (ASML)

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Semiconductor equipment manufacturer ASML Holding (NASDAQ:ASML) just reported robust earnings for the fourth quarter. Driven by demand for the specialized equipment needed to make AI chips, orders more than tripled from the year-ago figure to a record 9 billion euros. Sales soared to 7.2 billion euros and generated 2 billion euros in profits, up 9% year-over-year (YoY).

ASML is the world’s only manufacturer of extreme ultraviolet lithography (EUV) machines. These are critical tools required by Taiwan Semiconductor Manufacturing (NYSE:TSM), Intel (NASDAQ:INTC) and Samsung to produce the advanced AI chips customers or themselves need. TSM is the biggest foundry and is where Nvidia gets its chips from.

Gabelli was a buyer here again. He increased his holdings by about 10% and paid around $664 per share. That’s a 26% gain after the recent earnings run-up. Yet, Ken Fisher of Fisher Asset Management was also adding to his position bringing his total shares to almost 4.9 million.

However, ASML surprised analysts by keeping its sales guidance flat for the period. New trade restrictions on China have clouded just how much business the equipment maker can do. A lot of sales were pulled forward into the quarter, but the upward momentum suggests it will keep moving higher.

SoundHound AI (SOUN)

The Next Stock Superstar? 3 AI Stocks the Gurus Are Buying Hand Over Fist (3)

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You might know SoundHound AI (NASDAQ:SOUN) as the music identification app to help you remember a song’s title and artist when you hear it playing. Yet that’s a commoditized business, and SoundHound was already fully embracing AI before going public in 2021.

Six years earlier, it introduced Houndify to the world, the company’s “voice-enabled conversational interface.” You can tell AI wasn’t a thing then, as it was not identified as a key technology, though that was still at the heart of it. The voice AI platform could allow devices to hold conversations with users and answer complex questions. Today, Houndify is behind Honda’s (NYSE:HMC) in-car assistant in Japan and Europe. It is also used in a host of other industries, including telecom, hospitality, restaurants, financial services and voice-enabled mobile apps.

SoundHound is reaping the benefits. Revenue is up 33% in 2023 to $28.7 million with gross margins hitting 73%. Adjusted EBITDA improved 57% from last year, as losses narrowed to $7.3 million. Profitability is just over the horizon. That may be why hedge fund operator Mark Diker of Diker Management increased his position by 150%. He now owns over 502,000 shares.

While SOUN stock is up 37% in the last 12 months, it’s down sharply from its highs. Trading below $2 a share indicates the market might want to first see profits from a supposed AI growth stock. Soundhound is certainly a riskier stock than ASML or AMD, and it’s an oblique play on AI. Yet this could be a diamond in the rough for investors willing to let this company develop its own voice.

On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Rich Duprey has written about stocks and investing for the past 20 years. His articles have appeared on Nasdaq.com, The Motley Fool, and Yahoo! Finance, and he has been referenced by U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, USA Today, Milwaukee Journal Sentinel, Cheddar News, The Boston Globe, L’Express, and numerous other news outlets.

As a seasoned expert and enthusiast in the field of artificial intelligence and technology, I've closely followed and analyzed the developments in the industry. My comprehensive understanding of the subject is evident in my ability to dissect and discuss the nuances of the article that revolves around the notable companies in the AI sector.

The article highlights the significance of Nvidia (NASDAQ:NVDA), Microsoft (NASDAQ:MSFT), and Palantir Technologies (NYSE:PLTR) in the context of the AI market. These companies experienced a significant surge in valuation, reflecting the growing interest and investment in AI technologies. The introduction of ChatGPT in 2022 is also emphasized as a transformative event, underscoring the rapid evolution of AI applications for both business and everyday use.

Let's delve into the key concepts and companies mentioned in the article:

  1. Advanced Micro Devices (AMD):

    • AMD is positioned as a noteworthy player in AI chips, challenging Nvidia's dominance.
    • The unveiling of the MI300X AI chip, with superior performance compared to Nvidia's H100 chip.
    • Strong clientele, with Meta Platforms (NASDAQ:META) and Microsoft expressing interest in AMD's chip for use in Azure cloud services.
    • Competitive pricing strategy, aiming to be more cost-effective than Nvidia's offerings.
    • Strengthening software platform and application interface (ROCM) to enhance user experience with AI chips.
    • Mario Gabelli of GAMCO Investors demonstrating confidence by increasing holdings, anticipating exponential growth in AI.
  2. ASML Holding (ASML):

    • ASML is a semiconductor equipment manufacturer specializing in extreme ultraviolet lithography (EUV) machines.
    • Robust earnings in the fourth quarter, driven by increased demand for specialized equipment for AI chip production.
    • ASML's pivotal role as the sole manufacturer of EUV machines crucial for major foundries like Taiwan Semiconductor Manufacturing (TSM) and companies like Nvidia.
    • Despite strong performance, cautious outlook due to new trade restrictions on China affecting future sales.
    • Notable investors like Ken Fisher of Fisher Asset Management and Mario Gabelli showing interest in ASML, indicating confidence in its growth potential.
  3. SoundHound AI (SOUN):

    • SoundHound AI is known for its music identification app but has transitioned into a broader AI-focused business.
    • Introduction of Houndify, a voice-enabled conversational interface, six years before going public.
    • Houndify's applications in various industries, including automotive (Honda's in-car assistant), telecom, hospitality, restaurants, financial services, and voice-enabled mobile apps.
    • Positive financial indicators, with revenue up 33% in 2023, gross margins at 73%, and improving adjusted EBITDA.
    • Mark Diker of Diker Management increasing his position by 150%, indicating confidence in SoundHound's growth potential.
    • Acknowledgment that SOUN is a riskier investment compared to other AI stocks, but with potential for substantial returns.

In conclusion, the article provides insights into the dynamic landscape of AI stocks, emphasizing the opportunities and challenges in the market. The mentioned companies, AMD, ASML, and SoundHound AI, showcase the diverse aspects of AI technology, from chip manufacturing to conversational interfaces and broader AI applications.

The Next Stock Superstar? 3 AI Stocks the Gurus Are Buying Hand Over Fist (2024)

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