Stocks to Watch: 3 Smaller AI Players Ready for a Breakout

Stocks to buy

Artificial intelligence is an innovative technology with incredible potential. This is evidenced by stock investors who have made plenty of money investing in popular AI stocks like Nvidia (NASDAQ:NVDA).

Yet as the technology advances, a certainty is apparent. It becomes more difficult to experience incredible gains as corporations become larger. Nvidia isn’t a small stock anymore, and it hasn’t been in that category for several years. The corporation has a $1.2 trillion market cap that can realistically reach $2 trillion in a few years.

However, investors can experience higher returns with smaller AI players. These stocks don’t have the same clout as Nvidia, but their smaller nature can lead to better momentum. Investors looking for additional AI stock opportunities may want to consider these three smaller companies.

Supermicro (SMCI)

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Super Micro Computer (NASDAQ:SMCI) offers vital servers and storage solutions that enable artificial intelligence technology. Yet its stock has had a torrid start this year. Shares have gained over 230% year to date (YTD) and are up by 1,292% over the past five years.

Shares are down by roughly 20% from their all-time high but are gaining momentum. The company’s 24 P/E ratio is a good foundation for a company with good revenue and earnings growth.

Super Micro Computer reported 33.6% year-over-year (YOY) revenue growth. Net sales went from $1.64 billion to $2.18 billion during that time frame. Net income jumped by 37.5% YOY from $141 million to $194 million. The firm has a good partnership with Nvidia which can help their stock price run higher as AI demand grows.

In the Fiscal Q4 Earnings Report, President and CEO Charles Liang expressed enthusiasm about the “unprecedented demand” for artificial intelligence. That’s the exact type of need that can boost the stock price and help Super Micro command a higher valuation.

Axcelis Technologies (ACLS)

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The artificial intelligence boom depends upon several components which can make investors wealthy in the long run. Good AI chips are the foundation for artificial intelligence tools and offerings.

The rising importance of semiconductors has made Axcelis Technologies (NASDAQ:ACLS) a potential pick as an AI breakout. The stock has done its part so far, with shares up 146% YTD. ACLS has shot up nearly 900% over the past five years.

Chipmakers rely on Axcelis Technologies’ tools to produce transistors. These transistors are critical for all electronics and artificial intelligence. A car can’t be a car without wheels, and transistors have a similar role for chipmakers. It helps explain the reason the firm has experienced rapid growth.

Q2 revenue reached $274.0 million, which represents a 23.9% YOY jump. Net income came in at $61.6 million, or 39.3% YOY, demonstrating healthy double-digit profit margins.

SoundHound AI (SOUN)

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SoundHound AI (NASDAQ:SOUN) is the smallest artificial intelligence company on this list. The firm only has a $600 million market cap and reported $8.75 million in Q2 revenue. It marks a 42% YOY increase, and adjusted EBITDA also experienced an increase. The latter metric went up by 50% YOY.

Net losses are declining, and the company now has over $130 million on the balance sheet. The SounHound’s financials are improving, and shares have almost doubled YTD. Returns have been bumpy since its IPO in 2022. However, momentum has been changing for the stock.

SoundHound AI offers artificial intelligence products for businesses that want to provide conversational experiences to their customers. Their products can communicate in multiple languages and have already attracted plenty of attention.

SoundHound AI is a small player in an industry with a $160B+ total addressable market. The corporation works with top companies like Block (NYSE:SQ), Qualcomm (NASDAQ:QCOM), Honda (NYSE:HMC), and Snap (NYSE:SNAP). More companies need voice AI, and SoundHound is leading the market. The company is not yet profitable, but its small size and financials present a compelling opportunity for long-term investors.

On this date of publication, Marc Guberti held long positions in SMCI and ACLS. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Marc Guberti is a finance freelance writer at InvestorPlace.com who hosts the Breakthrough Success Podcast. He has contributed to several publications, including the U.S. News & World Report, Benzinga, and Joy Wallet.

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