Many artificial intelligence stocks have outperformed the Nasdaq 100. While the popular index is up by over 40% year to date (YTD), many AI stocks have more than doubled.
None of those stocks have captured as many headlines as Nvidia (NASDAQ:NVDA), the growth stock that seems to keep on growing. Anytime stocks like Nvidia take off, investors use them as inspiration and look for stocks that can deliver better gains.
While it’s hard to find stocks that can outperform Nvidia, investors should keep a few thoughts in mind. Promising stocks tend to have high revenue growth and profitability. Some investors can overlook profits if the losses are minimized, and the company is poised to become profitable soon.
Investors also have to keep the market cap in mind. While I like Broadcom (NASDAQ:AVGO) stock, its $360 billion market cap likely disqualifies it from mirroring Nvidia’s 5-year returns. For context, Nvidia generated a 613% return over the past five years. Broadcom would have to become a $2.5 trillion stock in the next half decade to match Nvidia’s return rate.
So, investors looking for cutting-edge AI stocks may want to consider these three picks.
SoundHound AI (SOUN)
SoundHound AI (NASDAQ:SOUN) is a high-risk, high-reward stock with a good business model. The company offers voice AI solutions to small businesses and corporations to improve customer service and enable more efficient, automated conversations.
The AI company powers millions of products and services, working with top corporations like Microsoft (NASDAQ:MSFT) and Block (NYSE:SQ). The firm has a $160 billion addressable market for its product.
SoundHound AI reported 42% year over year (YOY) revenue growth and a 21% YOY improvement in its net loss. Investors sometimes have to ride out unprofitable quarters to achieve Nvidia-like returns. In this case, the company’s Q2 net loss was $21.9 million. SOUN AI has been a bit rocky for investors, as it’s down by over 20% over the past year. However, shares have almost doubled YTD.
The stock’s big advantage for shareholders is the company’s $600 million market cap. The stock previously traded at over $13 per share but currently down to roughly $2.50 per share. A return to $13 per share would result in a gain higher than Nvidia’s 5-year 613% gain.
The company’s strong partnerships, solid revenue growth, and declining losses make this AI stock a contender for high long-term returns.
Symbotic (NASDAQ:SYM) is a bit larger than SoundHound AI due to its $23 billion market cap. However, shares have outperformed Nvidia YTD which automatically warrants a closer look.
SYM offers autonomous robots that perform tasks in warehouse settings. The company has a significant partnership with Walmart (NYSE:WMT). The robot producer has a $23 billion order backlog and $513 million in cash, cash equivalents, restricted cash, and marketable securities.
Symbotic has good top-line growth but shows room for improvement in its bottom line. The company reported $312 million in Q3 revenue, marking a 77.6% YOY increase. The company’s adjusted EBITDA loss plunged from $22 million to $3 million in the quarter, indicating a significant improvement. SOUN expects an adjusted EBITDA between $0 and $3 million next quarter, as well as revenue between $290 million and $310 million.
The supply chain industry’s value exceeds $1 trillion, and Symbotic is poised to capitalize on that opportunity. It already works with well-known brands for e-commerce fulfillment and distribution centers.
Symbotic has already outperformed Nvidia stock over the past year as well as the past six months, making it an enticing choice for long-term investors.
Palantir Technologies (PLTR)
Palantir Technologies (NYSE:PLTR) specializes in big data analytics, with its stock gaining 137% YTD and a $32 billion market cap.
That market value may cause a challenge for the company to generate a 613% return over the next five years. However, its revenue and earning numbers are impressive. Although revenue growth has slowed down lately, it still displays double-digit gains.
In the second quarter, Palantir reported $533 million in revenue, representing 13% YOY growth. More importantly, the firm generated a GAAP net income of $28 million, marking the company’s third consecutive quarter of GAAP profitability.
Accelerating profits leads to better profit margins which can strengthen a stock’s valuation. The firm has many government contracts, but the firm also experienced a 35% YOY growth in U.S. commercial consumers.
The valuation still isn’t the best, with the stock currently trading at a 65-forward P/E ratio. However, the 1.13 PEG ratio makes the stock look more enticing. If the company can continue to achieve higher net income milestones, the forward P/E can become more manageable for new investors.
On the date of publication, Marc Guberti did not have (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.