Semiconductor giant Nvidia (NVDA) has established itself as the leading stock in the artificial intelligence (AI) sector, attracting significant attention from both investors and analysts. Nvidia stock has soared 131.9% so far this year, outperforming the S&P 500 Index’s ($SPX) gain of 10.4%.
As Nvidia’s stock keeps on rallying, investors may believe they have missed out on one of the biggest winners in the AI sector. However, the AI revolution is far from over. There are other promising stocks in this space that could generate significant returns. That’s why I want to highlight two AI stocks that could soar this year.
The first AI stock I like is Fortinet (FTNT), a major player in the cybersecurity industry known for its strong network security solutions. As cyber threats escalate globally, companies like Fortinet become increasingly important, making their stock an appealing option for long-term investors.
The second AI stock on my list is Soundhound AI (SOUN), a pure-play AI company that is gaining stock market traction as a promising player in the voice AI technology space. Furthermore, Nvidia’s $3.7 million investment in SOUN stock has fueled the stock’s rise this year.
1. Fortinet
Fortinet (FTNT) provides robust network security solutions, including a wide range of products that address various aspects of cybersecurity. Its flagship product, FortiGate, is a family of next-generation firewalls (NGFWs) with advanced security features like intrusion prevention, firewalling, antivirus, VPN, and web filtering.
Valued at $45.4 billion, FTNT stock has gained 2% year-to-date compared to the broader market.
It also provides products for cloud, end-point, application, email, web, and industrial control system security. Fortinet’s diverse product portfolio and commitment to innovation have established it as a reliable partner for organizations looking to protect their digital assets.
In its first quarter of 2024, total revenue grew 7% year-over-year to $1.35 billion, thanks to a 24% jump in services revenue from the prior-year quarter. However, product revenue declined by 18.3%.
Total billings for the quarter fell 6.4% to $1.41 billion. Billings are outstanding invoices that have yet to be recognized as revenue. Net income rose 26% in the first quarter.
In the Q1 earnings call, management highlighted the “backlog headwinds easing in the second half of 2024” and that the company is seeing “early signs that the firewall digestion cycle is nearing completion.”
In 2024, management expects billings in the range of $6.4 billion to $6.6 billion, compared to $6.4 billion in 2023. Revenue could land between $5.74 billion to $5.84 billion, versus $5.3 billion in 2023. Furthermore, adjusted EPS for the full year could fall between $1.73 and $1.79.
Cash and short-term investments totaled $3.0 billion, along with a long-term debt of $992.8 million. It also had a free cash flow balance of $608.5 million at the end of the quarter. It implies that the company is prepared to weather the difficult times.
Analysts covering Fortinet stock predict a 9.3% year-over-year increase in revenue to $5.8 billion and an 8.7% increase in earnings in 2024. Further, revenue and earnings are estimated to rise by 13.1% and 10.8%, in 2025, respectively.
Overall, analysts have rated FTNT stock as a “moderate buy” with an average target price of $70.25. This indicates an upside potential of 17.6% over the next 12 months. Out of the 36 analysts covering the stock, 11 have a “strong buy” rating, two have a “moderate buy” rating, and 23 have a “hold” rating. Further, its high target estimate of $87 implies a potential gain of 45.6% from current levels.
Fortinet stock seems expensive, valued at 31 times forward projected earnings for 2025. While the shares appear to be overvalued right now, the cybersecurity market is expected to grow at a 9.4% compound annual growth rate, reaching $298.5 billion by 20278. Given Fortinet’s reputation as a credible cybersecurity company, investors willing to accept the risk of industry volatility may find Fortinet to be a worthwhile long-term investment.
2. Soundhound AI
SoundHound AI (SOUN), valued at $1.6 billion, has developed a robust suite of voice AI technologies that are used in a variety of industries, including automotive, consumer electronics, hospitality, and telecommunications. So far this year, SOUN stock has gained an impressive 121%, on pace with Nvidia’s returns.
The voice AI assistant space is highly competitive, with major players such as Google (GOOGL), Amazon (AMZN), and Apple (AAPL) already dominating the space. These tech giants have a plethora of resources and established ecosystems, posing a significant challenge to Soundhound.
Despite these challenges, the company has shown promising financial performance. Revenue growth is being driven by increased adoption of the Houndify platform and an expanded client base.
In the recent first quarter, SoundHound’s revenue surged by an outstanding 73% year on year to $11.6 million. Furthermore, its cumulative subscription and booking backlog (contractual revenue yet to be recognized) rose by 80% to $682 million during the quarter.
SoundHound AI, like many other emerging technology companies, is still in the investment phase, with a focus on growth rather than immediate profitability. This approach is common among technology firms looking to establish a strong market foothold, which is why it is still unprofitable. In Q1, the adjusted net loss narrowed down to $0.07 per share, compared to $0.08 in the same quarter last year.
Management updated revenue guidance for 2024 to be between $65 million and $77 million, representing a 42% to 68% increase, in line with consensus estimates. Analysts covering the stock further expect revenue to increase by 46.5% in 2025.
The voice AI market is booming, thanks to the rising adoption of voice-activated devices and increased demand for seamless human-computer interactions. Market experts predict that the global voice recognition market will reach $84.9 billion by 2032, expanding at a compound annual growth rate (CAGR) of 23.7%.
This is a huge opportunity for SoundHound AI because of its expanding position in the industry, which is supported by an extensive portfolio and strategic partnerships with leading brands. trading at 23 times forward 2024 sales, though pricey, the stock appears to be a good value given the long-term advancement of AI.
In the analyst community, out of the six analysts that cover SOUN stock, four rate it a “strong buy” while two rate it a “hold.” The average target price of $7.17 implies a 52.5% upside from current levels. The high target price of $9.50 implies the stock has the potential to go as high as 102% in the next 12 months.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
