SoundHound AI (NASDAQ: SOUN) and Tremendous Micro Laptop (NASDAQ: SMCI) characterize two very alternative ways to spend money on the booming synthetic intelligence (AI) market. SoundHound’s namesake app is used to determine and uncover songs, whereas its Houndify developer platform permits corporations to create their very own speech-recognition instruments. Tremendous Micro Laptop, extra generally often known as Supermicro, is a number one producer of AI servers.
Each corporations have shut ties to Nvidia (NASDAQ: NVDA). Nvidia was one in all SoundHound’s earliest backers previous to its public debut in 2022, and it not too long ago made one other funding within the firm. Supermicro’s partnership with Nvidia grants it entry to the chipmaker’s top-tier knowledge middle graphics processing items (GPUs) earlier than most of its opponents.
That is why each shares soared alongside Nvidia’s because the AI market expanded. Over the previous 12 months, SoundHound’s inventory jumped 248% as Supermicro’s inventory rallied 1,150%. However do you have to spend money on both of those high-flying AI shares proper now?
SoundHound is a speculative inventory
SoundHound competes towards Microsoft and Alphabet‘s Google within the audio and speech-recognition market, however its Houndify platform is an interesting choice for corporations that do not wish to tether themselves to these tech giants.
Automakers like Hyundai and Stellantis, sensible TV makers like Vizio, and fast-food chains like Church’s Rooster all use Houndify to create customized voice-recognition providers. That market ought to proceed increasing as generative AI applied sciences grow to be extra refined. It additionally not too long ago acquired the restaurant-solutions supplier SYNQ3 to broaden its ecosystem.
SoundHound went public by merging with a particular objective acquisition firm (SPAC) in 2022. Its income rose 47% in each 2022 and 2023, and analysts count on its income to rise 51% to $69.5 million in 2024.
However based mostly on these expectations and its enterprise worth of $2.2 billion, SoundHound’s inventory nonetheless seems expensive at 32 occasions this 12 months’s gross sales. It is also unprofitable on a usually accepted accounting rules (GAAP) foundation, and it does not even count on its adjusted earnings earlier than curiosity, taxes, depreciation, and amortization (EBITDA) to show optimistic till 2025. Its excessive debt-to-equity ratio of 4.3 may additionally restrict its potential to lift recent money.
These points may restrict its upside potential so long as rates of interest keep elevated, but it surely may nonetheless carve out a defensible area of interest within the evolving voice-recognition market and entice some buyout curiosity from its greater opponents.
Supermicro is a foundational participant within the AI market
Supermicro is not the world’s largest producer of pre-built servers, but it surely differentiated itself from its bigger opponents by constructing high-performance servers for more durable duties. That focus made it a really perfect associate for Nvidia, which labored with Supermicro to design AI servers which used its high-end knowledge middle GPUs. Nvidia’s rival AMD has additionally been working with Supermicro to develop new AI servers for that booming market.
When Supermicro went public again in 2007, it did not initially acquire a lot consideration as a result of the server market was already closely commoditized. However over the previous few years, it turned one of many market’s hottest development shares because the generative AI market exploded and knowledge middle operators ramped up their orders of AI servers.
Supermicro’s income soared 46% in fiscal 2022 (which led to June 2022) and grew one other 37% in fiscal 2023. Analysts count on its income to rise 104% in fiscal 2024 because the market’s demand for brand spanking new AI servers persistently outstrips its out there provide. For fiscal 2025, they count on income to rise one other 36% to $19.8 billion.
Supermicro ended its newest quarter with a low debt-to-equity ratio of 0.8. It is worthwhile, and analysts count on its earnings per share (EPS) to soar 86% in 2024 and 35% in 2025. Its inventory nonetheless seems fairly valued relative to these expectations at 37 occasions ahead earnings and three occasions subsequent 12 months’s gross sales. However the AI market must preserve increasing — and Supermicro must persistently develop its share of the AI server market — for the corporate to succeed in these targets and help its rising valuations.
The higher purchase: Tremendous Micro Laptop
Each of those AI corporations are rising quickly, however Supermicro is clearly a greater purchase than SoundHound AI. Supermicro has a extra established enterprise; it has a wider moat; it is extra worthwhile; and its inventory seems cheaper. SoundHound may need gained some recent consideration with Nvidia’s funding, but it surely hasn’t confirmed that its enterprise mannequin is sustainable but.
Do you have to make investments $1,000 in SoundHound AI proper now?
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Suzanne Frey, an government at Alphabet, is a member of The Motley Idiot’s board of administrators. Leo Solar has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Superior Micro Gadgets, Alphabet, Microsoft, and Nvidia. The Motley Idiot recommends Stellantis 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 coverage.
Higher AI Inventory: SoundHound AI vs. Tremendous Micro Laptop was initially printed by The Motley Idiot