Stock prices of AI-related stocks arm holdings (NASDAQ:ARM), Soundhound AI (NASDAQ: SOUN)and Bigbear.ai (NYSE:BBAI) As of 12:13 p.m. ET on Friday, they were up 15.4%, 21.7% and 22.8%, respectively, this week, according to S&P Global Markets data.
There wasn't much company-specific news for these three names this week. But positive comments from some of the tech giants in the Magnificent Seven, particularly regarding AI investments, were enough to restart enthusiasm for more speculative AI stocks after a month of declines.
Are you planning to bounce?
It should be noted that the main reason these three companies rallied this week is because each was also caught up in the massive tech stock decline over the past month. After a strong start to the year, recent higher-than-expected inflation rates have caused a sharp decline in highly regarded artificial intelligence (AI) stocks heading into earnings season.
Persistent inflation and rising long-term interest rates will particularly impact unprofitable and unprofitable stocks. This applies to these three names. Arm is currently very expensive, with a price-to-earnings ratio (P/E) of over 1,000 and a forward P/E ratio of nearly 70. Meanwhile, SoundHound is still generating an operating loss despite experiencing an impressive 80% revenue growth last quarter. The same is true for Bigbear.ai, which reported its second consecutive quarter of positive earnings before interest, taxes, depreciation, and amortization (EBITDA) and its first positive operating cash flow quarter since 2021. I mentioned that. However, Bigbear.ai also has a significant amount of debt, approximately $195 million. Therefore, Bigbear.ai may be particularly sensitive to movements in interest rates.
ARM data by YCharts.
So after last month's decline, these three companies probably should have rebounded on some good news.and earnings comment meta platform (NASDAQ:Meta), microsoft (NASDAQ: MSFT)and alphabet (NASDAQ:GOOG) (NASDAQ:Google) It looks like the good news has arrived this week. While some investors remain skeptical of the AI boom over the past year, comments from these tech giants show that the AI wars are not slowing down. In fact, they may just be getting started.
Despite the sell-off following the results, Meta raised its forecast for capital spending this year to a range of $35 billion to $40 billion, up from its previous forecast of $30 billion to $37 billion, fueling enthusiasm for AI stocks. arrived. Additionally, CEO Mark Zuckerberg appears to indicate that robust AI investments will continue regardless of earnings trends.
The excitement continued Thursday night as both Microsoft and Alphabet beat analysts' expectations for the first quarter on the back of accelerating cloud growth. Microsoft's Azure cloud accelerated to 31% growth on a constant currency basis, compared to 28% in the previous quarter. Additionally, Alphabet's cloud growth accelerated to 28% compared to the 26% figure recorded in the previous quarter.
Microsoft and Alphabet both recorded significant increases in capital spending, likely related to investments in AI data centers. Alphabet's capital spending nearly doubled from a year ago to more than $12 billion, while Microsoft's capital spending rose to nearly $11 billion from $6.6 billion a year earlier.
The only one of these three companies directly affected by all that spending is the one that owns its IP. Nvidia (NASDAQ:NVDA) As for Nvidia's Grace central processing units (CPUs), these companies are likely to purchase them as part of Nvidia's Grace Hopper superchip.
However, accelerating cloud revenues and strong increases in capital spending indicate that the general outlook for AI applications is positive going forward. And if the AI tailwinds are real, companies like SoundHound, which has partnered with Nvidia to develop AI voice applications, and Bigbear.ai, an AI data analytics company serving both enterprises and the U.S. military, are poised to do so. You can profit from a growing pie.
These three are high-risk ways to play AI with potentially high rewards
Although Arm is an established company, it is relatively new to the public and AI data center markets, and the majority of its revenue still comes from smartphones. However, Arm-based chips are gaining popularity in other devices as well, as energy efficiency is a key concern for AI applications. Growth in Nvidia's Arm-based CPUs and the prospect of more Arm-based PC chips for AI PCs next year could lead to further upside.
However, SoundHound and Bigbear.ai, with market capitalizations of $1.3 billion and $430 million, respectively, have more upside potential due to the fact that they are smaller companies with significant growth potential today. . Neither is profitable at the moment, so the risk is high. But AI tailwinds remain strong and each has the potential to be a multibagger if management executes.
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Alphabet executive Suzanne Frye is a member of The Motley Fool's board of directors. Randi Zuckerberg is a former Facebook market development director and spokesperson, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool's board of directors. Billy Duberstein has held positions at Alphabet, Meta Platforms, and Microsoft. His clients may own shares in the companies mentioned. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
Why Arm Holdings, SoundHound AI and Bigbear.ai Holdings are up this week was originally published by The Motley Fool
