Artificial Intelligence: Growth Drivers and Investment Opportunities
Artificial intelligence (AI) has become one of the most powerful growth drivers in the market today. While this growth is largely being led by megacap tech companies with deep pockets, there are smaller companies in the space that could also become big winners. While they carry more risk, their size and the opportunity in front of them make them potentially rewarding stocks.
Let's look at three high-risk, high-reward stocks to consider now.
1. SoundHound AI: Pioneering Voice-First AI Assistants
SoundHound AI (SOUN) is a small-cap stock pursuing one of the toughest problems in tech: making AI-powered voice assistants more useful and less frustrating. If you've ever had a conversation with Siri or Alexa that went nowhere, you know why this matters. SoundHound built its system from the ground up to process speech in real-time to figure out what you mean, not just what you said. Its acquisition of Amelia took it to the next level by adding deep conversational intelligence and getting it into fields with specific industry jargon, such as healthcare and financial services.
Thus far, its solution has seen strong adoption. Last quarter, its revenue surged 217% to $42.7 million, and management anticipates achieving adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) profitability by the end of 2025. However, this could just be the start of a long runway of growth.
The company is looking to move beyond voice into AI agents, with the launch of Amelia 7.0. These new AI agents can actually take action on what users ask, and SoundHound even added real-time visual recognition so its agents can respond to both voice and image inputs. It's currently transitioning its 15 largest customers to the platform. While many companies are targeting the AI agent opportunity, the ability to have AI agents that truly understand the user's intent is crucial.
If SoundHound can establish itself as a leader in voice-first AI agents, the stock has substantial upside potential.
2. AppLovin: An AI-Powered Advertising Powerhouse
AppLovin (APP) has transformed itself into one of the fastest-growing AI companies by going all-in on AI adtech. It sold off its gaming business and focused on Axon 2.0, its AI engine that figures out which ads to show, how much to bid, and where to place them. The result has been remarkable growth.
Last quarter, its revenue surged 77% to $1.26 billion, while adjusted EBITDA nearly doubled to $1 billion, demonstrating the profitability of its model as it scales. The stock has performed exceptionally well, up over 400% in the past year, but the company is still only scratching the surface. The company's success has largely been in gaming apps, but management is now testing Axon 2.0 in e-commerce and web advertising markets. It's also launching a self-serve ad manager and expanding internationally. This opens up a much larger market and could sustain growth for years.
Skeptics have challenged the story, but quarter after quarter, AppLovin continues to deliver. If Axon 2.0 performs outside of gaming as successfully as it has within, this stock still has significant upside remaining.
3. GitLab: A DevOps Platform Enhanced by AI
GitLab's (GTLB) stock hasn't mirrored the gains of SoundHound and AppLovin; however, the software-as-a-service (SaaS) company has consistently executed. In fact, it's grown its revenue by between 25% to 35% year-over-year for eight straight quarters, including a 29% jump last quarter. Growth stems from adding new customers and existing customers expanding their usage. Its strength with existing customers was evident last quarter when it posted a 121% dollar-based net retention rate.
While existing customers are upgrading their service tiers and incorporating AI add-ons, most of this growth continues to be from seat expansions. This is significant because it directly addresses the bearish argument that AI will reduce the need for coders and hurt GitLab's growth. Instead, AI is driving increased software development and greater developer adoption of GitLab's platform.
Additionally, GitLab has considerable opportunity to continue selling its AI tools to its existing customer base. Its Duo AI agent, which suggests code and automates repetitive tasks, is experiencing strong usage growth, but its potential is far from realized. The company is also transitioning to a hybrid seat-plus-usage pricing model to capture more value as its platform becomes increasingly critical. This protects against potential coder reduction while providing a growth driver as AI fuels greater software development. Furthermore, integrating AI-powered security features helps companies to build more secure and reliable software applications.
GitLab exhibits the characteristics of a growth stock poised for continued expansion, and it wouldn't be surprising if a cloud computing company eventually sought to acquire it.
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