The run-up in valuation for Nvidia (NASDAQ:NVDA), Microsoft (NASDAQ:MSFT) and Palantir Technologies (NYSE:PLTR) last year meant artificial intelligence ( ) 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)
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)
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)
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.