Boosted by the AI craze, it’s been a vintage year for tech stocks, but the summer season is proving to be a bit shakier so far. Since mid-July, the trend has been down, with the tech-heavy NASDAQ shedding ~5%.
This naturally raises the question: should we be ringing the alarm bells due to this shift?
Not at all, says Wedbush’s Daniel Ives, a 5-star analyst rated in the top 2% of the Street’s stock pros. Ives believes that the new bull market is simply taking a breather, and he asserts that the pullback will be short-lived. There have been ample indications during this earnings season that the overall trend is upward.
“The last few weeks June earnings season for the tech sector has revealed a number of dynamics now happening among enterprise and consumer spending globally, which we expect ultimately will push tech stocks higher despite this near-term pullback,” the top analyst explained. “We firmly stick with our bullish call that a 12%-15%+ in tech stocks will be in the cards heading into year-end as the new tech bull market has begun in our opinion.”
Against this backdrop, Ives has pinpointed an opportunity in two AI-driven tech stocks that he thinks are ready to make the most of this bull market, with one boasting a whopping 260% upside potential. We ran the pair through the TipRanks database to find out what other Street analysts have to say too. Let’s check the results.
SoundHound AI (SOUN)
The AI revolution is one that fits our first Ives-endorsed name to a tee. SoundHound AI is a leader in voice and audio recognition, employing advanced machine learning and natural language processing techniques to enable seamless and intuitive interactions with audio content. SoundHound AI is renowned for its exceptional music recognition capabilities, allowing users to identify songs by simply humming, singing, or even describing a few lyrics.
In addition to its music recognition prowess, SoundHound AI extends its capabilities to voice assistants and smart devices, allowing users to interact with technology through voice commands and natural language. Its versatile applications range from voice search and command interpretation to enabling hands-free control of various devices in homes, cars, and other environments.
Over the years, the company has nabbed deals with an impressive list of companies including Hyundai, Mercedes-Benz, Kia, Deutsche Telekom, Snap, and Vizio.
Turning to the financials, Wall Street seemed pleased enough with the company’s latest quarterly readout. In Q2, revenue climbed 42% year-over-year to reach $8.8 million, higher than the Street’s $8.1 million forecast. Robust product royalties and a strong showing in the automotive segment saw the backlog record a 20% increase to $339.2 million.
Due to the scaling of the business and improving data center efficiency, the company delivered impressive gross margins of 79.1% while cost savings helped EPS of ($0.10) beat the consensus estimate of ($0.12).
Looking ahead, SoundHound reiterated its expectation for 2023 revenue in the range between $43 to $50 million.
It all points to future success in an AI-driven world, say Ives. “With AI getting more eyes than ever and creating an expanding TAM, SoundHound is well-positioned to capitalize on the demand for AI chatbots with more use cases being provided every day while expanding its voice-enabled ecosystem to accelerate growth,” he said. “Overall, we believe this was a major step in the right direction for the SOUN story as the company continues to build toward profitable growth with stable revenue pillars and strong monetization capabilities to capture demand from small players to major enterprises as management across industries seeks ways to optimize efficiencies.”
Considering all of the above, Ives holds high hopes. Along with an Outperform (i.e. Buy) rating, he assigns SOUN a $7 price target. This projection allows for a substantial 260% upside from the current share price of only $1.9. (To watch Ives’ track record, click here)
Two other analysts have recently waded in with SOUN reviews, and both are also positive, making the consensus view here a Strong Buy. The average price target is not quite as optimistic as Ives’ goal, but at $4.60, it still implies that shares will potentially yield impressive returns of 137% in the year ahead. (See SOUN stock forecast)
Palantir Technologies (PLTR)
From one AI-themed stock to another. Palantir is a software company renowned for its data analytics and integration platforms, making it a big data specialist. The company specializes in providing organizations with advanced tools to manage, analyze, and make sense of large and complex datasets with its software platforms incorporating AI and machine learning capabilities.
Its Gotham platform is widely used by government agencies, law enforcement, and intelligence organizations, while in recent years, Palantir has expanded its offerings beyond the government sector with products like Palantir Foundry, aimed at commercial enterprises looking to enhance their data management and analysis capabilities.
It also recently launched its Artificial Intelligence Platform (AIP) and going by the noises made by management in the Q2 earnings call, it is seeing a level of demand the company has never witnessed before.
Elsewhere in the quarter, revenue saw a 12.8% year-over-year increase to reach $533.32 million, while adj. EPS reached $0.05, both meeting Street expectations. The total customer count rose by 38% from the same period a year ago while the US commercial customer count saw a 35% increase to 161 customers, showing Palantir’s efforts to gain traction in the sector are bearing fruit.
And due to growing demand, the company raised its FY23 guidance from the prior $2.185 billion – $2.235 billion range to above $2.212 billion. The Street was looking for just $2.212 billion. The Q3 guide of $553.0 million – $557.0 million also came in, at the midpoint, above the $553.1 million consensus estimate.
Scanning the print, Ives thinks it offers plenty of evidence Palantir will continue benefiting from the adoption of AI.
“With a raise in FY23 guidance, significant increase in customer count, strong performance, and the AI arms race well underway, we continue to believe Palantir is the gold standard in AI and are confident in the company’s efforts to expand into the commercial space while maintaining its massive government presence,” Ives opined.
Accordingly, Ives rates PLTR shares an Outperform (i.e. Buy), backed by a $25 price target. The implication for investors? Potential upside of 62% from current levels.
However, not all on the Street are quite as convinced. The stock claims a Hold consensus rating, based on a mix of 3 Buys, and 5 Holds and Sells, each. It should be noted that PLTR shares are up by a strong 141% year-to-date. As such, the $15.05 average target suggests the shares are currently trading just below their fair value. (See Palantir stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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