Artificial intelligence (AI) is already being utilized in multiple applications. From image recognition to healthcare, e-commerce to advertising to credit scoring and many other industries – all are making use of AI’s human-like capabilities. And with computing power continuously improving, it is set to get more prevalent over time.
One recent example of its impact is ChatGPT – the AI chatbot developed by OpenAI and launched last November. The tool has quickly caught the public’s imagination with its ability to perform different tasks such as write articles, songs and even write code and its success has only highlighted how AI will keep on impacting our lives.
Of course, with any fledgling industry, investors will get an opportunity to buy in and there are publicly traded companies basing their entire value proposition around AI.
With this in mind, we delved into the TipRanks database and pulled out two AI-focused stocks that have the experts singing their praises. Let’s see what makes them appealing investment choices right now.
SoundHound AI (SOUN)
The first AI stock we’re looking at is SoundHound AI, a voice assisting specialist. Via speech, its voice AI platform enables consumers to interact with products. This is not some esoteric segment of the market we’re talking about. The company sees a huge TAM (total addressable market) of $160 billion ahead; by 2024, there are expected to be 8 billion voice assistants in use with 75 billion connected devices operating worldwide the following year. SoundHound has some big-name clients on its roster such as Mercedes-Benz, Hyundai, Mercedes-Benz, Kia, Deutsche Telekom, Snap, Stellantis and Vizio.
SoundHound only became a public entity this year, entering the market via the SPAC route back in April. It has been a trial by fire, to say the least. The shares are down by 88% since the debut as SPACs went seriously out of favor in 2022’s bear.
Nevertheless, despite worries about the company being able to withstand the tough macro conditions amidst continued losses, it has been posting some impressive growth. In Q3, revenue climbed by 178% YoY to $11.2 million. The company saw a cumulative bookings backlog of $302 million, amounting to a 239% YoY increase – representing a fourth consecutive quarter of triple-digit growth and a company record.
In November, the company introduced a new product called Dynamic Interaction, a conversational AI tool that enables businesses to use voice AI technology when servicing customers.
Cantor’s Brett Knoblauch thinks it could be a “game-changing technology as it pertains to how humans interact with computers, and more broadly speaking, technology.”
“We believe there are numerous use-cases that this technology could be utilized for, with low-hanging fruit being within customer-service settings like restaurants,” the analyst went on to add. “We believe this product 1) further expands upon SOUN’s conversational AI advantage; 2) gives us greater visibility into SOUN’s revenue trajectory; 3) will accelerate the mix-shift of revenue towards subscription revenue; and 4) expands SOUN’s addressable market.”
Conveying his confidence, Knoblauch rates SOUN as Overweight (i.e., Buy) and backs it up with a $1.60 price target, implying shares will move ~32% higher over the one-year timeframe. (To watch Knoblauch’s track record, click here)
Knoblauch, while bullish on the stock, is somewhat conservative compared to the general Wall Street view here. The average price target is higher than Alexanders, at $3.70, implying a strong upside potential of ~206% from the $1.21 share price. Unsurprisingly, SOUN has a Strong Buy analyst consensus rating, based on a unanimous 3 Buys. (See SOUN stock forecast)
Perfect Corp (PERF)
The next AI stock we’ll look at is Perfect Corp, essentially a SaaS company with a twist. The unique selling point is that it offers augmented reality and artificial solutions to the fashion and beauty sectors. So, how does that work?
With the use of facial 3D modelling and deep learning tech, the company’s AI/AR makeup and hair solutions allow users to try on makeup and different hairstyles and dyes digitally. Basically, AI-powered virtual try-on offerings. In a world where so much is shifting online and consumers expect engaging experiences catered to their own style, the company is an early mover with a market leading position in this niche. Formed in 2015, some of the world’s most famous cosmetics companies are already on board; Estee Lauder Group, Coty, Kose, LVMH, and Shiseido are all using the solutions.
The company has only been on the public markets since the end of last October when it IPOd via the SPAC route; at the end of November, Perfect announced unaudited financial results for the nine months of the year. Driven by an uptick in AR/AI cloud solutions and subscription revenues, total revenue increased by 22.1% year-over-year to $36.2 million, while gross profit rose from $25.6 million in the same period a year ago to $31.1 million. Even better, net income swung dramatically from a net loss of $3.1 million a year ago to $28.5 million.
For Oppenheimer analyst Brian Schwartz, that is just one of the reasons that makes Perfect an appealing investment choice.
“The business is a proven disruptor of the beauty industry, has achieved scale, and is profitably growing at a fast rate,” the 5-star analyst said. “We think the pedigree, technology vision, strong culture, and industry experience of its CEO and leadership team will set the company up to be a vertical SaaS leader and become a good compounding growth investment… The beauty and fashion markets for AI/AR solutions are early in evolution; PERF is arguably the best growth asset in the categories for investment.”
Accordingly, Schwartz rates PERF shares an Outperform (i.e., Buy), while his $10 price target implies 12-month growth of ~25%. (To watch Schwartz’s track record, click here)
Looking at the consensus breakdown, 1 Buy and 2 Holds have been published in the last three months. As a result, PERF gets a Moderate Buy consensus rating. (See PERF stock forecast)
To find good ideas for AI stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
