Technology stocks have been in red-hot form on the market in the past year as investors have been buying companies in this sector to capitalize on popular growth trends such as artificial intelligence (AI).
As it turns out, the Nasdaq-100 Technology Sector index's gains of 31% have outpaced the S&P 500 index's 27% returns in the past year. What's worth noting is that many technology stocks have delivered outsize gains in the past year. For instance, shares of SoundHound AI(NASDAQ: SOUN) and Super Micro Computer(NASDAQ: SMCI) have jumped 106% and 111%, respectively.
The outstanding rally in these stocks can be justified by their terrific growth. The good part is that both companies are sitting on lucrative end-market opportunities, which can help them keep growing at an eye-popping pace this year and beyond. Here's why investors should consider buying these two fast-growing names.
1. SoundHound AI
The market for AI voice assistants was worth an estimated $2.6 billion last year, but it is expected to clock an impressive annual growth rate of 28.5% over the next decade and generate $32 billion in annual revenue. SoundHound AI is making the most of this nascent opportunity. The company is not only growing at a faster pace than the market in which it operates, but it is also making moves to ensure that it manages to corner a bigger share of the end-market opportunity on offer.
More specifically, SoundHound AI's revenue in the first six months of 2024 has increased by 62% from the same period last year to $25 million. The company's full-year revenue outlook of at least $80 million indicates that its growth is set to accelerate in the second half of the year. It was earlier anticipating 2024 revenue of $71 million, but a solid revenue pipeline and a recent acquisition have led it to increase its expectations.
The company recently announced the acquisition of enterprise AI software provider Amelia for $80 million in a bid to bolster its position in the conversational generative AI market. SoundHound points out that the combined company's customer base will span close to 200 marquee customers, including Fortune 500 companies and the top 15 banks globally.
It is worth noting that SoundHound has already made good headway into the automotive and quick-service restaurant markets, with customers such as Stellantis and multiple restaurants on its books. Amelia could help expand its reach further in the AI-enabled customer service market. The acquired company is expected to contribute over $45 million in recurring software revenue to SoundHound's top line in 2025, pushing its total revenue next year to more than $150 million.
So, SoundHound seems set to sustain its outstanding growth next year as well, and that's not surprising as the company estimates that its cumulative subscriptions and bookings backlog stands at a massive $723 million. This metric, which SoundHound says is an indicator of its future growth, doubled on a year-over-year basis last quarter.
In all, SoundHound AI could keep growing at a terrific pace in 2024 and beyond, which is why investors looking to add a growth stock to their portfolios would do well to take a closer look at this AI company.
2. Super Micro Computer
While SoundHound AI is a play on the software side of the AI market, investors looking to benefit from the booming demand for AI hardware can consider buying Super Micro Computer. The company makes servers and storage systems on which AI chips from popular chipmakers are mounted, and the demand for its offerings is so strong that it has been enjoying eye-popping growth over the past year.
Revenue in fiscal 2024 (which ended on June 30) increased to $14.9 billion from $7.1 billion in the previous one. Though the company witnessed a contraction in its profit margin on account of its focus on rapidly expanding production capacity to meet the demand for AI servers, it still posted year-over-year growth of 87% in adjusted earnings to $22.09 per share last year.
The AI server maker's fiscal 2025 guidance indicates that it is set up for another year of phenomenal growth. Supermicro (as the company is often called) has guided for full-year revenue of $26 billion to $30 billion. Its revenue could double at the higher end of its guidance range when compared to fiscal 2024. What's more, analysts are expecting its earnings to increase nicely once again this year, followed by healthy growth over the next couple of years.
SMCI EPS Estimates for Current Fiscal Year data by YCharts
It may be surprising to see that analysts have increased their earnings growth expectations from Supermicro. However, management pointed out on the company's recent earnings conference call that it expects margins to return to normal levels later in the current fiscal year. With the market for AI servers expected to generate annual revenue of $430 billion in 2033 as compared to an estimated $40 billion this year, Supermicro has the potential to keep growing at a stunning rate for a long time.
The company's revenue guidance for the current fiscal year indicates that it is on track to corner a sizable share of the AI server market, based on the estimated $40 billion market size as mentioned in the previous paragraph. All this indicates why the company's earnings are expected to grow at an annual rate of 62% for the next five years.
And finally, buying this hypergrowth stock looks like a no-brainer as it is trading at just 18 times forward earnings as compared to the Nasdaq-100 index's forward earnings multiple of 29 (using the index as a proxy for tech stocks).
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.
