News is good and positive
2 Growth Stocks With Great Long-Term Potential in the New Bull Market
John Ballard, The Motley Fool
Mon, May 20, 2024 at 4:10 AM CDT4 min read
In This Article:
The stock market has historically delivered an average-annual return of about 10% since 1927. After falling in 2022, the major indexes have risen to new highs this year and are kicking off a new bull market. This means investors could be looking at a long stretch of good returns, considering that bull markets tend to last longer than bear markets.
Let's look at two promising tech stocks that could deliver significant gains over the next decade.
1. Soundhound AI
New bull markets are often led by stocks of high-growth companies that are disrupting old ways of doing things. From that perspective, it's no surprise that leaders in artificial intelligence (AI) delivered huge gains for investors last year. Soundhound AI (NASDAQ: SOUN) is a leader in voice assistance that is seeing interests for its technology from automotive companies, restaurants, and Internet of Things (IoT) product makers.
The productivity gains from using AI could add trillions of value to the global economy, and we can see this playing out in the number of restaurants that are starting to use Soundhound's Smart Ordering product. Many leading restaurant brands are using Smart Ordering to process customer orders, including Chipotle Mexican Grill, Five Guys, Applebee's, and Jersey Mike's. The company's revenue, which is partly generated from royalties and subscriptions, jumped 73% year over year last quarter.
The stock rocketed to a high of $10.25 earlier this year before selling off to its current share price of around $5. These wild swings are the name of the game for small-cap growth stocks. But investors should prepare for more volatility until the company can prove it can deliver profitable growth. It reported a net loss of $33 million, or $0.12 per share, last quarter.
Meanwhile, investors are already valuing the business at an expensive price-to-sales (P/S) multiple of 25. This high valuation implies the expectation for higher margins over time, so the risk is that it fails to successfully monetize its voice technology.
The good news is that Soundhound AI's focus on earning royalties and making money from subscriptions should lend itself to a profitable business over the long term. Indeed, its gross margin of more than 70% is consistent with other profitable software companies, so investors should expect the company to see progress on the bottom line as it continues to win new customer deals.
Assuming the company continues to execute on cost controls, the long-term upside for this small-cap stock could be massive.
