The Motley Fool highlights two small caps with ‘far more’ upside than the Magnificent Seven

Archer Aviation stands to benefit from the growing urban air mobility market. / Photo: archer.com

The Motley Fool has highlighted two small-cap stocks, SoundHound AI and Archer Aviation, with “far more” upside than the so-called Magnificent Seven. Over the last five years, these tech giants have delivered at least triple-digit returns to investors. However, Wall Street’s current expectations for them are more modest: Of the group, Alphabet has the highest near-term upside at 22%. The Motley Fool argues that SoundHound and Archer could offer far higher returns.

SoundHound AI

With a market capitalization of $1.86 billion, SoundHound AI specializes in AI-powered speech and sound recognition technologies. Its systems are used, for instance, in Stellantis-owned brands (e.g., Jeep and Dodge) and by food service companies seeking to automate customer service.

SoundHound AI remains “a very small business… but it’s growing like there’s no tomorrow,” the Motley Fool argues. In the second quarter of 2024, the company reported 54% year-over-year growth in revenue to $13 million, as well as $201 million in cash and equivalents. Revenue could continue growing at “high-double-digit rates for several years,” the Motley Fool says, as the company estimates the addressable market for voice AI at more than $140 billion.

Wall Street’s average target price for SoundHound AI is $7.80 per share, for upside of more than 50% versus the last closing price. The Motley Fool cautions that, since the company has yet to turn a profit, the stock will likely remain volatile.

Archer Aviation

Archer Aviation, with a market capitalization of $1.1 billion, develops electric vertical takeoff and landing aircraft. Currently, it is waiting on final regulatory approval to launch its commercial service.

Morgan Stanley estimates that the urban air mobility market could reach $29 billion by 2030 and exceed $1 trillion in the following decade. Archer Aviation is well positioned to capitalize on this opportunity, the Motley Fool believes. The company plans to launch an air taxi network in major cities in partnership with Southwest Airlines and United. It also has agreements with Stellantis, which will provide as much as $400 million in funding to produce up to 650 aircraft annually.

The Motley Fool sees “massive” long-term return potential for Archer stock. Wall Street’s average target price for Archer is $9.06 per share, indicating upside of nearly 200% versus the last closing price.