SoundHound AI’s Meteoric Rise: Is It Overvalued? In 2024, SoundHound AI has emerged as a standout stock in the artificial intelligence (AI) sector, posting extraordinary gains of 936%. This surge is fueled by impressive growth, a significant investment from AI giant Nvidia, and recent optimistic commentary from Wall Street analysts who see SoundHound as a possible long-term success story.
While SoundHound AI’s growth has been remarkable and indicates strong demand in the voice AI solutions market, its stock now appears very expensive after such a significant price increase.
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At present, the stock trades at 109 times its sales. In contrast, Nvidia, a leading player in AI, has a price-to-sales ratio of 31 despite its own substantial growth and dominant position in AI chip production. Thus, investors seeking to enter the AI market may want to consider alternatives to SoundHound.
Advanced Micro Devices (NASDAQ: AMD) is one of those promising alternatives worth examining. Below are several reasons why AMD could be a favorable choice for AI investments as we approach 2025.
Prospects for AMD’s Turnaround in 2025
In the past year, AMD’s stock has lagged behind the competition, declining by 16% while the broader PHLX Semiconductor Sector index has risen by 20%. A key factor in AMD’s underperformance has been its limited presence in the AI chip market.
Currently, the company forecasts $5 billion in sales from AI graphics processing units (GPUs) used in data centers. This is significantly less than rival Nvidia, which reported record data center revenue of $30.8 billion last quarter, an increase of 112% year-over-year. Nonetheless, there are positive indicators in AMD’s AI business.
AMD’s data center revenue grew by 122% year-over-year in the third quarter of 2024, reaching $3.5 billion, primarily driven by increased sales of AI GPUs and server processors. Additionally, AMD has consistently raised its sales forecast for data center GPUs throughout 2024, initially projecting just $2 billion in sales at the beginning of the year. This trend suggests AMD is slowly but surely gaining traction in the AI market.
Looking ahead, AMD’s GPU sales for data centers could continue to rise in 2025 due to strong demand and an improving supply chain. During its earnings call in October 2024, CEO Lisa Su emphasized significant growth plans for the company’s AI chip supply in 2025.
AMD has partnered with Taiwan Semiconductor Manufacturing, which plans to double its advanced chip packaging capacity by the end of 2025. While Nvidia has secured 60% of TSMC’s advanced chip packaging, AMD can still expect an increase in AI chip production next year, further boosting its data center revenue.
It’s important to note that AMD does not need to surpass Nvidia to achieve meaningful growth. The management believes that the AI accelerator market could reach $500 billion by 2028. If AMD captures even a 10% share, its data center GPU revenue could grow tenfold from 2024 levels.
Furthermore, AMD has opportunities within the personal computer (PC) market as well. Global AI PC shipments are projected to increase from 43 million units in 2024 to 114 million in 2025, according to Gartner. Su noted that both HP and Lenovo plan to significantly expand their Ryzen AI Pro platforms in 2024. This positions AMD well to gain market share as companies upgrade their aging Windows 10 PCs, which will lose Microsoft support in 2025.
Given these developments, analysts predict a positive turnaround in AMD’s financial performance in the upcoming year.
Growth Potential and Valuation Make AMD Worth Considering
Industry experts anticipate a 13% increase in AMD’s revenue for 2024, reaching $25.6 billion, along with a 26% rise in earnings to $3.33 per share. The following chart illustrates the projected acceleration in AMD’s growth for 2025.
AMD Revenue Estimates for Next Fiscal Year data by YCharts
The stock currently trades at 25 times its expected earnings, which is below the tech-focused Nasdaq-100 index’s average earnings multiple of 33. If AMD were to trade at 30 times earnings in a year and achieve $5.10 per share in earnings, its stock price could potentially rise to $153, representing a 25% increase.
There is further potential for growth if AMD achieves stronger earnings growth and the market reacts positively to its performance. Therefore, investors seeking a reasonably priced AI stock with growth potential in 2025 might want to consider AMD instead of the highly valued SoundHound.
Seize the Opportunity Before It’s Too Late
Have you ever felt like you missed out on investing in top-performing stocks? If so, you’ll want to take note of this.
Occasionally, our team of analysts issues a “Double Down” stock recommendation for companies they believe are on the verge of significant gains. If you’re concerned about missing your chance, this is an excellent time to invest before it becomes too late. The numbers speak volumes:
- Nvidia: If you invested $1,000 when we recommended it in 2009, you’d have $356,514!*
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Currently, we are issuing “Double Down” alerts for three outstanding companies, and this may be your last chance to take advantage of such opportunities.
View 3 “Double Down” stocks »
*Stock Advisor returns as of December 30, 2024
Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, HP, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Gartner and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
