Picking AI stocks that can make big gains in the next five years can seem like an embarrassment of riches. There are many companies to choose from. But it still may be better to narrow your focus as you look at this compelling sector.
An increasing number of companies are touting their AI capabilities. That growth is priced in – and in some cases is being priced out of AI stocks. Now investors are looking for companies that will be able to monetize AI. That’s where the next wave of growth will come from. That list is still robust, but it’s more focused on some of the best-in-class companies.
This article highlights one large cap, one mid-cap, and one small-cap AI stocks that are likely to deliver significant gains in the next five years. This can fit different investing styles. Or, if you choose, you can take a position in each one for diversification within the sector.
Microsoft (NASDAQ:MSFT) is my large cap pick for this list of AI stocks. The company made a noteworthy splash with its investment in OpenAi in early 2023. This leapfrogged Microsoft into a leadership position in generative AI.
That investment will expand to include Microsoft Copilot. The company labels this as an AI companion experience that will use AI to apply web intelligence, enterprise data, and real-time user context to provide users with a holistic AI experience.
Analysts view Copilot as a gateway for Microsoft to begin monetizing AI. There are also rumors that Microsoft may be developing its own AI chips.
MSFT stock is up approximately 1,000% in the last 10 years. It’s unlikely that investors will get another 10x gain between now and 2030. Still, this is a stock with a large runway ahead of it. And investors also get a very sustainable dividend that currently has a yield of 0.83% and an annual payout of $2.72 per share.
SentinelOne (NYSE:S) is the mid-cap pick on this list of AI stocks to buy for long-term growth. The company combines two of the hottest trends: cybersecurity and artificial intelligence. In fact, the company’s Singularity platform is powered by AI and is in high demand as evidenced by strong revenue growth.
The company is also expanding into generative AI with its Purple AI chatbot. This prompts security managers to points of vulnerability, ask for a network scan to hunt for new threats, and provide a summary of security incidents to save managers the time of manually digging through data.
The company is the subject of acquisition rumors. And objectively, the stock may be undervalued. It’s hard to say because the company is still unprofitable and isn’t expected to be anytime soon. Still, revenue continues to show strong sequential and year-over-year (YOY) revenue growth that investors shouldn’t be too quick to dismiss.
SoundHound AI (SOUN)
SoundHound AI (NASDAQ:SOUN) is the small-cap pick on this list of AI stocks. The company specializes in using AI to create voice assistants that are a less robotic alternative to Alexa or Siri. SoundHound’s goal is to create voice assistants that can engage in natural conversations that can understand context and meaning.
There are two things that should immediately jump out to investors. First is the company’s current customer list that includes electric vehicle (EV) and data center companies including Microsoft. Second is the company’s revenue that is growing at an impressive rate.
Like many small-cap companies, SoundHound is not widely covered by analysts. However, the five that have issued ratings all give SOUN stock a Strong Buy rating. Dan Ives of Wedbush gives the stock a $7 price target. Investors looking to get involved should also note the institutional investor activity. Only 26% of the company’s stock is owned by analysts. However, in its most recent quarter, there was a significant increase in activity and buyers strongly outnumbered sellers.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.