Long-Term AI Investments: Waiting for Better Stock Prices
The direction of the Stock market in 2025 remains uncertain. Recently, Wall Street has shown unpredictability, leading to volatile short-term trends. However, a couple of artificial intelligence (AI) investments appear poised for price corrections, making them attractive for long-term holds.
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The long-term business prospects for these companies seem promising. Even if I purchase their stocks at inflated prices, they could enhance my portfolio. That said, I would prefer to wait for the next market downturn among growth stocks. While these leading AI companies are performing well, they would become even more appealing at lower prices. If a bear market starts in 2025, I’ll be prepared to act on these investment ideas.
Nvidia: The Premium Leader in AI Hardware
Semiconductor designer Nvidia (NASDAQ: NVDA) has delivered impressive returns for investors in recent years. Once primarily known for gaming hardware, Nvidia emerged as a top provider of AI accelerator equipment in 2022. Its devices were crucial in training OpenAI’s ChatGPT 3 system, igniting the current AI boom.
The market responded favorably to Nvidia’s AI success, with shares soaring over 800% during the initial two years of the ChatGPT era. This growth was backed by real numbers; Nvidia’s annual revenues quadrupled, and free cash flows skyrocketed by 1,380%.
Currently, Nvidia’s business is thriving, and many investors anticipate its AI dominance will persist. Although the Stock price has retracted roughly 10% from February’s all-time highs, it remains a solid long-term option. However, the stock is still priced for perfection, trading at 25 times trailing sales and 54 times free cash flows—high valuations even for a fast-growing tech company.
The competitive landscape also poses challenges for Nvidia. Its longtime rival, Advanced Micro Devices (NASDAQ: AMD), offers comparable AI accelerator products, often at lower prices. Furthermore, major AI-service players like Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) and Amazon (NASDAQ: AMZN) Web Services (AWS) have developed their own hardware, using AI chips to reduce costs and meet specific performance requirements.
Given these dynamics, Nvidia’s current stock price may be considered overvalued despite strong prospects. A price drop of 20% to 30% might prompt me to reevaluate my interest in Nvidia. Ideally, a significant market downturn could reduce its price to around $100 per share, making it more appealing for investment. Until then, I prefer to keep my capital reserved.
SoundHound AI: Ambitious Vision and Overvalued Shares
If you think Nvidia’s stock is expensive, consider SoundHound AI (NASDAQ: SOUN). This AI services firm operates at a staggering 44 times sales while currently being unprofitable.
Despite these financial metrics, SoundHound AI could represent a breakthrough in voice recognition technology. For instance, their recent first-quarter report showed revenues skyrocketing 151% from the previous year. Management forecasts full-year revenues reaching about $167 million in 2025, a significant increase from last year’s $85.7 million.
SoundHound AI has established partnerships with notable companies, including automaker Stellantis and digital media company Pandora, which is now part of Sirius XM Holdings. Over the past three years, the company has expanded its market presence, adding clients such as digital payments giant Block, Mexican chain Chipotle Mexican Grill, and electronics leader LG. This diversified clientele demonstrates the growing demand for voice-driven services.
Users encounter SoundHound AI’s technology in various everyday settings, from drive-thrus to customer service menus. This broad market application signifies a substantial opportunity for growth in the voice service sector. However, SoundHound AI faces stiff competition from larger tech companies like Alphabet and Amazon, making its success uncertain.
About four months ago, I suggested considering SoundHound AI at $7 per share. Recently, the stock has declined 20% since mid-January, standing at around $11, still above my initial buy target of $7.
Like Nvidia, SoundHound AI could be sensitive to overall market risks. The next market downturn may offer the buying opportunity I’m looking for. Until then, I will hold on to my current shares.
Should You Invest in SoundHound AI Now?
Before making an investment decision regarding SoundHound AI, it’s crucial to weigh the risks involved:
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For context, take note of Netflix’s performance when it was recommended on December 17, 2004. If you had invested $1,000 at that time, it would now be worth over $642,582! Similarly, Nvidia’s recommendation on April 15, 2005, would have turned a $1,000 investment into $829,879!*
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John Mackey, former CEO of Whole Foods Market and now an Amazon subsidiary, serves on The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is also part of the board. Anders Bylund has holdings in Alphabet, Amazon, Nvidia, and SoundHound AI. The Motley Fool recommends Advanced Micro Devices, Alphabet, Amazon, Block, Chipotle Mexican Grill, and Nvidia, and has established positions in Stellantis while advising options such as short June 2025 $55 calls on Chipotle Mexican Grill. The Motley Fool adheres to a strict 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.
