Semiconductor company Nvidia has led the S&P 500 higher this year amid mounting interest in artificial intelligence (AI). But we are still in the early stages of the AI boom, and certain Wall Street analysts are pounding the table on alternative investments. For example:
- Gil Luria at DA Davidson expects SoundHound AI(NASDAQ: SOUN) to reach $9.50 per share in the next 12 months. That forecast implies 98% upside from its current share price of $4.80.
- Ark Invest analysts led by Cathie Wood expect Tesla(NASDAQ: TSLA) to reach $2,600 per share by 2029. That forecast implies 1,040% upside from its current share price of $228.
Investors should never put too much confidence in price targets, but SoundHound AI and Tesla are worth further consideration. Here are the relevant details.
SoundHound AI: 98% implied upside
SoundHound specializes in conversational intelligence solutions, or voice artificial intelligence (AI) products, that can be incorporated into smart devices. Its technology has applications across various industries, from automotive and consumer electronics to restaurants and customer service. And the company has won several high-profile customers, such as Stellantis, Toast, and Qualcomm.
SoundHound is a small business competing against behemoths like Amazon and Microsoft. But management believes it has better technology and a more flexible platform than its competitors, which makes it easier for brands to build differentiated and customized voice AI solutions.
SoundHound is growing very quickly, but the company has yet to turn a profit. Revenue surged 54% to $13.5 million in the second quarter. Meanwhile, non-GAAP (generally accepted accounting principles) net income was negative $14.8 million, a slight improvement from negative $16 million in the prior year.
Earlier this year, SoundHound completed its $25 million acquisition of SYNQ3 Restaurant Solutions, a company that specializes in conversational intelligence for food and beverage brands. That deal established SoundHound as the largest provider of voice AI technology for restaurants. More recently, SoundHound completed its $80 million acquisition of Amelia, a recognized leader in enterprise conversational AI platforms, extending its purview in customer service.
Going forward, Wall Street expects revenue to increase at 96% annually through 2025, meaning analysts anticipate an acceleration in the coming quarters. That consensus estimate makes the current valuation of 24.2 time sales look tolerable. Patient investors comfortable with risk and volatility can consider buying a small position today, but not with the expectation of 98% upside in the next year.
Tesla: 1,040% implied upside
Tesla is the global leader in battery electric vehicles (BEVs), but its market share is declining across the United States and Europe. The company accounted for 17.6% of global BEV sales year to date through July, down 3.3 percentage points from the prior year.
But investors shouldn't fret too much. Losing share is inevitable as the landscape becomes more competitive, and the challenging economic environment is currently pushing consumers toward cheaper options.
More importantly, Tesla believes full self-driving (FSD) technology will be its primary source of profitability in the future. The company already monetizes FSD through subscription sales, but CEO Elon Musk has discussed licensing the technology to other automakers. Additionally, Tesla plans to launch an autonomous ride-hailing business at some point. The company has not set a specific date, but information may be forthcoming when Tesla unveils its robotaxi on Oct. 10.
Tesla reported disappointing financial results in the second quarter. Revenue increased 2% to $25.5 billion, and GAAP net income declined 45% to $1.5 billion. The company has now missed earnings estimates in four consecutive quarters. Factors contributing to that trend include price cuts meant to stimulate demand and costs associated with the Cybertruck production ramp-up.
Looking ahead, Tesla is one of the companies best positioned to monetize autonomous driving technology. Its large, growing fleet of FSD-enabled vehicles supports data collection on a scale no other automaker can match, and quality data is essential for training machine learning models. Indeed, Ark Invest estimates Tesla is accumulating autonomous driving data 110 times faster than Alphabet's Waymo.
Wall Street expects Tesla's adjusted earnings to increase at 21% annually through 2025. That estimate makes the current valuation of 98 times adjusted earnings look expensive. At that price, investors who buy shares today should do so in a very conservative fashion. That means start small and build the position over time.
Ark Invest's price target implies a market capitalization above $9 trillion by 2029. I think Tesla may hit that milestone eventually, depending on how well it executes on its robotaxi vision, but I am skeptical about the timeline. The stock would need to return about 57% annually for Tesla to hit $9 trillion by 2029. So, I would advise investors to set their expectations much lower.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon, Nvidia, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, Nvidia, Qualcomm, Tesla, and Toast. The Motley Fool recommends Stellantis and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
