SoundHound AI: Rapid Growth Amid Valuation Concerns

SoundHound AI Stock vs. Palo Alto Networks Stock: Wall Street Says Only One Will Head Higher in 2025 | The Motley Fool

Wall Street expects big moves from both of these stocks in 2025, but they could head in opposite directions. Artificial intelligence (AI) was the driving force behind some of the biggest winners in the stock market in 2024. Companies able to leverage the power of AI within their own business or help other enterprises use AI saw their stock prices soar. And that trend looks poised to continue in 2025. Two companies that could see years of strong growth fueled by advancements in AI capabilities are SoundHound AI (SOUN -2.36%) and Palo Alto Networks (PANW -0.03%). SoundHound expanded its customer base for its audio recognition platform in 2024 with the help of a key acquisition. Palo Alto, meanwhile, uses machine learning to help enterprises identify and prevent cyberattacks. SoundHound saw its shares climb 836% in 2024 while Palo Alto returned a more pedestrian 23%. But Wall Street only expects one to repeat its performance while the other could be in for a down year. Here's what investors need to know. SoundHound has been around for about 20 years, originally creating an app that could identify songs based on someone humming the melody. It's since gone on to become the leader in what it calls "conversational intelligence." The company combines audio recognition and natural language processing enabling humans to more or less have a conversation with a computer. 2024 was a big year for SoundHound. It acquired Amelia, an enterprise conversational AI leader, which helped broaden its customer base. In the third quarter, SoundHound reported its largest customer accounted for 12% of revenue compared to 72% in the prior year. It also spread out into multiple industries thanks to the acquisition. It now has customers across restaurants, financial services, healthcare, insurance, and the automotive sector. In 2023, 90% of its business came from auto manufacturers incorporating SoundHound's technology into its voice-activated controls. With new services for various industries and the addition of Amelia, SoundHound's revenue growth accelerated to 89% in the third quarter. Its combined backlog of subscriptions is north of $1 billion, which it will go on to earn over the next six years or so. That suggests more strong revenue growth ahead for the business. For 2025, management expects about $165 million in revenue, nearly double its expectations for 2024. While the Amelia acquisition helped bring scale and diversification, it also came with a significant step up in cost of sales. Management expects to realize some synergies between the businesses, resulting in some margin recovery, but SoundHound probably won't return to the 75% gross margin business it operated previously. Still, management plans to make the business profitable on an earnings before interest, taxes, depreciation, and amortization (EBITDA) basis by the end of the year. Profitability according to generally accepted accounting principles (GAAP) may be some years away, though. SoundHound is growing quickly and making moves to cement its position across multiple industries. It's executing well and in a position to scale rapidly and become profitable over time. The problem with the stock is its valuation. As of this writing the stock trades for a price-to-sales ratio of about 29 times the midpoint of management's 2025 outlook. That's incredibly expensive, even for a company growing as fast as SoundHound. Palo Alto Networks is one of the leading enterprise cybersecurity providers. Its offerings include hardware and software services to protect clients' networks from unauthorized access. It also provides cloud and endpoint security, enabling enterprises to use public clouds and securely access them from anywhere around the world. As more and more enterprises shift operations from on-site storage and computing to a hybrid approach with the cloud, the opportunity for cyberattacks grows considerably. Add in more remote workers, and minimizing the chances of opening up a vulnerability or leaking important data becomes a highly complex challenge. As a result, there's a growing demand for Palo Alto's services. Of course, Palo Alto needs to be able to stay one step ahead of cybersecurity challenges, and it uses machine learning to detect threats and close vulnerabilities quickly. One of the biggest challenges in developing an effective machine learning system is getting good data -- and lots of it. As a leader in the cybersecurity space, Palo Alto is uniquely positioned to build effective machine learning algorithms. As a result, Palo Alto is winning more business from existing customers and attracting new customers, taking share from smaller competitors. The companies' remaining performance obligations grew 20% year over year in the first quarter of fiscal 2025. That indicates a strong pipeline of business for the company. Specifically, Palo Alto's focused on growing its software-based next-gen security. Annual recurring revenue for those subscription offerings climbed 40% year over year, topping $4.5 billion in the quarter. Management expects that number to climb to $15 billion by 2030. Palo Alto's shift toward more software services should have a positive impact on its gross margin over time. As revenue grows, profits should grow even faster due to the leverage inherent in software sales. As it stands, Palo Alto Networks trades for a price-to-sales ratio of about 12.2 times analysts' 2025 consensus estimate as of this writing. That's not particularly inexpensive, but it's certainly more attractive than SoundHound's stock price. Considering the improving profitability of the business and strong moat provided by its scale, it looks like a fair price to pay for the stock.

SoundHound AI Stock: Sell At This Over Bloated Valuation (NASDAQ:SOUN)

Lock in gains with SoundHound's stock trading at near ~30x forward revenue, and wait for share prices to come down further before buying back in. For some investors, the precipitous downside that we've seen in the early trading sessions of 2025 is an indicator that we're repeating similar patterns to what we saw in 2022, in which many stocks crashed from pandemic-era highs (the S&P With combined experience of covering technology companies on Wall Street and working in Silicon Valley, and serving as an outside adviser to several seed-round startups, Gary Alexander has exposure to many of the themes shaping the industry today. He has been a regular contributor on Seeking Alpha since 2017. He has been quoted in many web publications and his articles are syndicated to company pages in popular trading apps like Robinhood. Analyst's Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Prediction: 2 Stocks That Will Be Worth More Than SoundHound AI 1 Year From Now

SoundHound AI has been one of the hottest stocks on the market in the past year, rising a stunning 602% as of this writing on the back of the company's phenomenal growth, as well as a small investment by artificial intelligence (AI) pioneer Nvidia in this small but fast-growing voice AI solutions provider. SoundHound's terrific rise has brought its market capitalization to $4.7 billion as of this writing. However, the company has been prone to wild swings in its stock price in the past year. SoundHound stock is down 35% as of this writing in 2025 even in the absence of any company-specific information that could have caused such a steep sell-off. One reason why investors may be hitting the sell button and booking profits in SoundHound stock is because of its extremely expensive valuation. The stock is currently trading at 58 times sales. That's richer than even Nvidia, a company that's much bigger and has been growing at a faster pace than SoundHound. The rich valuation explains why SoundHound's 12-month median price target of $9 suggests that the stock could drop nearly 30% from current levels. So, investors looking to capitalize on the AI boom may consider looking elsewhere as SoundHound's valuation indicates that the stock may have gotten ahead of itself. This is where C3.ai (AI -0.93%) and DigitalOcean (DOCN 2.44%) come into play. Both of these tech companies have been growing at a steady pace and are trading at reasonable valuations, and it won't be surprising to see them overtaking SoundHound's market cap in the coming year. Let's look at the reasons why. 1. C3.ai C3.ai carries a 12-month consensus price target of $40, which would be a 30% jump from current levels. Assuming C3.ai hits that mark in the coming year, its market cap could jump to almost $5.2 billion from the current level of $3.99 billion. And if SoundHound AI stock drops as much as consensus estimates are projecting, there is a good chance that C3.ai will become a more valuable company in the span of a year. The good part is that C3.ai's recent results demonstrate that it is indeed capable of delivering the upside that Wall Street is expecting from the company in the next year. The company's revenue in the second quarter of fiscal 2025 (which ended on Oct. 31, 2024) increased 29% year over year to $94.3 million. That was a solid improvement over the 21% year-over-year revenue growth that C3.ai reported in the first quarter of the fiscal year. C3.ai also increased its full-year revenue guidance to a midpoint of $388 million from the previous estimate of $382.5 million. The updated guidance would translate into a 25% improvement over fiscal 2024 levels when the company's top line increased at a relatively slower pace of 16%. So, C3.ai's growth has accelerated nicely in the ongoing fiscal year, and that trend seems here to stay considering the huge addressable market opportunity the company is sitting on. Mordor Intelligence estimates that the cloud AI services market could generate $89 billion in revenue this year. It is expected to clock a compound annual growth rate of 32% through 2030, generating $363 billion in revenue at the end of the forecast period. C3.ai has set its sights on this opportunity through a wide portfolio of more than 100 enterprise AI applications that can be deployed in multiple industries ranging from oil and gas to manufacturing, to defense and intelligence, to retail, to government applications. More importantly, it is offering these services through popular cloud computing platforms such as Microsoft Azure, Amazon Web Services, and Google Cloud. These channel partners are helping C3.ai drive strong growth in the number of agreements that it is signing with customers. In the second quarter of fiscal 2025, C3.ai closed 62% of its 58 agreements through the partner network. Google Cloud alone accounted for 20 of those agreements, a jump of 180% from the prior year. This solid sales momentum through the partner network is here to stay as C3.ai has been tightening its relationship with the likes of Microsoft, which should allow it to reach a wider customer base and tap the massive opportunity present in the cloud AI market. Finally, C3.ai is trading at a sales multiple of 11, much more affordable than SoundHound AI. Moreover, C3.ai's improving growth profile means that it can justify its valuation, suggesting that the stock can indeed head higher in the coming year and overtake SoundHound's market cap. 2. DigitalOcean DigitalOcean is another company that's on track to capitalize on the growing adoption of cloud-based AI services. The company provides an on-demand cloud infrastructure platform that customers can rent to build, deploy, and scale applications. DigitalOcean is now offering cloud infrastructure services powered by graphics processing units (GPUs) from Nvidia to customers so that they can train AI models, generate images, and render videos in the cloud without having to incur any hardware costs. These moves could pave the way for stronger growth at DigitalOcean as its AI-focused offerings could encourage customers to spend more money. The good part is that DigitalOcean is already winning a bigger share of its customers' wallets. The company's average revenue per user (ARPU) increased 11% year over year in the third quarter of 2024 to $102.51. The increase in the ARPU explains why DigitalOcean's earnings increased at a faster pace of 18% year over year to $0.52 per share as compared to the 12% jump in its revenue. The company's 2024 guidance of $776 million points toward a 12% increase in its top line from 2023. Analysts are expecting an acceleration in DigitalOcean's growth in 2025 and 2026. DOCN Revenue Estimates for Current Fiscal Year data by YCharts However, don't be surprised to see the company delivering stronger growth in both 2025 and 2026. It is worth noting that DigitalOcean's 2024 revenue guidance has increased from its original forecast of $765 million issued in February last year. With the addition of AI-specific offerings into its portfolio, DigitalOcean may be able to capture a bigger share of its addressable market, which it expects to hit $213 billion in 2027, and clock stronger-than-expected growth. As such, buying DigitalOcean stock right now looks like a good idea as it is trading at just 4.4 times sales and 18 times forward earnings. Moreover, analysts are expecting the stock to hit a median price target of $40 in the next year, which would be a 19% jump from current levels. DigitalOcean is capable of achieving that target in the coming year or even beating it. If that's indeed the case and DigitalOcean jumps 19% in the next year, its market cap could jump to $3.7 billion, which would be enough to help it overtake SoundHound if the latter's stock price drops as much as analysts are anticipating.

Nvidia Owns 6 Artificial Intelligence (AI) Stocks. Here's Why 1 (SoundHound AI) Plunged by 32% Last Week. | The Motley Fool

Nvidia (NVDA -1.97%) was a $360 billion company at the start of 2023, but just two years later, its worth has accelerated to a whopping $3.3 trillion. The main driver behind the company's incredible growth is Nvidia's graphics processors (GPUs) for data centers, which are the best in the world for developing artificial intelligence (AI) models. AI has been a big driver of its growth and Nvidia is looking for ways to ensure AI keeps fueling its growth going forward. To help with that, over the past year or so, CEO Jensen Huang has been spreading some of Nvidia's wealth by investing in other AI stocks. Nvidia first started investing in AI stocks at the end of 2023. According to the company's latest 13-F filing with the Securities and Exchange Commission (SEC) from November 2024, these are the six names it currently holds: SoundHound AI stock was the top performer on that list in 2024, with a massive gain of 835%. But it's off to a very rocky start in 2025 -- last week (ended Friday, Jan. 10), its price plunged by 32% as investors trimmed their bets on stocks with elevated valuations. Will this be the ultimate opportunity to buy SoundHound stock? Conversational AI is designed to understand voice-based prompts and respond in kind. SoundHound is a leading developer of the technology, and it currently has customers in the quick-service restaurant industry, the hospitality industry, and even the automotive industry. However, SoundHound acquired another conversational AI company called Amelia last year, which is expanding its reach into new industries like financial services, insurance, and healthcare, so it's becoming a true powerhouse in this emerging space. SoundHound's applications are live in over 10,000 restaurant locations, where they automate drive-thru ordering, phone ordering, and in-store ordering. Plus, adoption is growing for the company's Employee Assist software, which can provide workers with immediate information about menu items or store policies on command. It's basically a virtual assistant they can speak to at any time during their shift. Chipotle Mexican Grill, White Castle, Applebee's, and Panda Express are just some of the top restaurant chains using SoundHound's technology. SoundHound's Chat AI software is also finding its way into several new cars from leading manufacturers like Stellantis (Chrysler, Jeep, and Dodge), Mercedes-Benz, and Hyundai. It's a powerful voice assistant that can give the driver information on everything from the weather to sports scores. At the CES 2025 technology conference in early January, SoundHound also unveiled the world's first in-vehicle voice commerce platform. Drivers can ask their voice assistant to place a takeout order from a local restaurant, with no phone call required. It even syncs with the vehicle's GPS navigation system, so if you're hungry on the way home from work, your food should be ready the moment you arrive at the restaurant to pick it up. SoundHound hasn't reported its financial results for the final quarter of 2024 just yet. However, the company's guidance suggests it could deliver up to $85 million in total revenue for the year. That would represent growth of 85% compared to 2023, and it would also be a record high. The inclusion of Amelia's revenue in 2024 is a key reason for the strong growth. Plus, in the third quarter (ended Sept. 30), SoundHound told investors that five different industries represented between 5% and 25% of its total revenue, whereas in the prior-year period, 90% of its revenue came from the automotive sector alone. That highlights how much the Amelia acquisition helped SoundHound diversify its business. 2025 could be SoundHound's biggest year so far. Before it even started, the company told investors it could deliver up to $175 million in revenue, which would represent accelerated growth of 105% compared to 2024. SoundHound also ended Q3 with a record order backlog worth a whopping $1 billion, which it expects to convert into revenue over the next six years. In other words, it has a huge demand pipeline, which should support its growth even beyond 2025. SoundHound stock recently peaked at around $24.23, which valued the company at $9 billion. Based on its trailing-12-month revenue, the stock was trading at a staggering price-to-sales (P/S) ratio of over 100, which was completely unsustainable. Even after its 32% dip last week, SoundHound's P/S ratio is still around 64, which is more than twice the P/S ratio of Nvidia. Nvidia is one of the highest-quality companies in the world with powerful revenue growth, soaring profits, a leadership position in AI hardware, and a decades-long track record of success. It doesn't make much sense for SoundHound stock to trade at such a hefty premium (or any premium at all) to Nvidia stock. Even if you measure SoundHound's P/S ratio on a forward basis using its forecast 2025 revenue of $175 million, its P/S ratio is still around 30. By comparison, Nvidia's forward P/S ratio is just 17, so I think SoundHound stock is still way too expensive. I'm not suggesting SoundHound stock needs to plunge further. It could trade sideways for the next few months until investors learn more about its revenue outlook for 2025, and potentially even 2026. However, it's very difficult to recommend buying the stock at the current price, because it's unquestionably overvalued when you use the best AI stock in the world as a benchmark.

1 Hypergrowth Tech Stock to Buy in 2025 | The Motley Fool

One of the greatest hypergrowth stocks on the market is a terrible buy right now, but that should change in 2025. An overheated stock price should cool down in the next few months, while the underlying long-term success story remains. As a result, I wouldn't touch shares of SoundHound AI (SOUN 8.60%) right now. At the same time, I'm prepared to pounce if and when the soaring stock price comes back to earth. Here's why I'm excited about SoundHound AI's future, and what I need to see before buying the stock again. SoundHound AI has a great future. Voice commands are making their way into many industries. Drive-through ordering windows and phone-based menus are already popular examples, along with in-car infotainment systems and various consumer electronics devices. The usual tech giants all have some kind of voice interpretation technology going on, including Apple's Siri and Amazon's Alexa assistants. Despite the presence of deep-pocketed household names, tiny SoundHound AI is winning voice-control contracts all over the place. The company already has long-term contracts with several automakers and fast-food chains. The roster is growing, and so is SoundHound AI's product portfolio. Just this month, for example, the company combined its two flagship technologies to enable food orders through your car stereo. So this little company is going places and I can't wait to see the stock build value in the long run. But I'm not a SoundHound AI buyer right now. Instead, I sold about half of my position in December, locking in the gains from a speculative price surge. SoundHound AI quickly built a following in well-known meme stock channels online, setting the stock up for a skyrocketing price surge. The stated idea was to take advantage of a high short-seller interest, forcing bearish investors to cover their bets in a so-called short squeeze. The move appears to have peaked over the holidays, and the stock now trades roughly 47% below the top of that price spike. I look forward to rebuilding my decimated SoundHound AI position, but it's still too early. The stock looked overpriced in the spring of 2024, when a small investment by Nvidia inspired rumors about a potential buyout or maybe an exclusive partnership. The rumors have not materialized and SoundHound AI's chart never even reached $9 in that bullish cycle. Again, I have high hopes for SoundHound AI's business prospects in the long run. Still, many things can go wrong along the way and the stock has not yet earned the lofty valuations it saw in recent weeks. The price to sales ratio topped out at 110.5 on December 26. It has backed down to 73 times sales in January 13, but that's still too much. SoundHound AI deserves a closer look if the stock price backs down to single-digit territory. I'm also monitoring how the company's business is developing. November's third-quarter report showed robust revenue growth and lower net losses, and management provided ambitious revenue guidance for the next two years. So SoundHound AI's business performance is on track. The meme stock mania should fade out over the next couple of months. The bulk of the speculative action probably fell in December, as indicated by lower prices and thinner trading volume. I'm ready to buy back the SoundHound AI shares I sold, but only if the price drop continues from about $13 per share to the $6-$7 range. Your mileage may vary, of course. It's hard to pin a proper valuation on small but fast-growing technology stocks like this one.

Why SoundHound AI Stock Is Skyrocketing Today | The Motley Fool

SoundHound AI (SOUN 9.27%) stock is surging higher in Wednesday's trading. The company's share price was up 11% as of 11 a.m. ET and had been up as much as 14.9% earlier in the daily session. Meanwhile, the S&P 500 index was up 1.6% and the Nasdaq Composite index was up 2.1%. SoundHound AI is seeing strong gains today, thanks to bullish inflation news. The stock is also getting a boost from an analyst price-target increase. Over the last year, the company's share price is now up 642%. The Bureau of Labor Statistics (BLS) published its latest Consumer Price Index (CPI) report, and the data is powering big gains for SoundHound AI and other growth stocks. The CPI report showed that core inflation came in at 3.2% in December, which was lower than the average economist's forecast for inflation of 3.3%. After factoring in food and energy costs, overall inflation came in at 2.9% -- in line with expectations. The lower-than-anticipated CPI inflation is making investors more confident that the Federal Reserve will continue to cut interest rates. The BLS' most recent jobs report arrived with more jobs growth than economists had expected and raised concerns that inflationary pressures could be increasing, but today's CPI report is helping to alleviate those concerns. Companies with growth-dependent valuations tend to perform much better in lower-interest-rate environments, due to lower borrowing costs and more favorable risk-reward dynamics. With SoundHound AI valued at roughly 33 times this year's expected sales, the conversational artificial intelligence (AI) specialist is certainly included in that category. In addition to bullish inflation news, SoundHound AI stock is also climbing higher in conjunction with recent analyst coverage. In a note published yesterday, Northland Securities maintained a market-perform rating on the stock and raised its one-year price target from $6 per share to $8 per share. Even though that price target implies significant downside potential, the increase suggests that Northland thinks the stock's performance outlook has improved. Notably, Northland's target for the stock is significantly lower that others that have been issued recently. In December, Wedbush's Daniel Ives raised his one-year price target on the stock from $10 per share to $22 per share. Soon after, H.C. Wainwright's Scott Buck increased his target on the stock from $8 per share to $26 per share. SoundHound has established itself as an early frontrunner in the rapidly expanding conversational AI space. The company has been posting rapid sales growth and could have a huge runway for long-term expansion. However, its growth-dependent valuation and speculative industry outlook also mean that the stock comes with a relatively high level of risk.

Better Artificial Intelligence Stock: Palantir vs. SoundHound AI | The Motley Fool

Palantir's shares had surged by more than 300% over the prior 12 months, while SoundHound had skyrocketed by 600%. Between these two stocks, is one a clearly superior investment choice to capitalize on the expanding AI market? Palantir's business is seeing strong growth thanks to its Artificial Intelligence Platform (AIP), which it launched in 2023. "We absolutely eviscerated this quarter, driven by unrelenting AI demand that won't slow down," CEO Alex Karp said in the third-quarter earnings press release. What makes Palantir's AIP so successful is that it goes beyond the kind of chat-based AI tool popularized by ChatGPT, which merely provides responses to human inquiries. The AIP platform goes further by employing an "AI agent," which can take action on behalf of its users. For example, AIP improved a large insurance company's underwriting workflow from a two-week timeframe to three hours. As CTO Shyam Sankar noted, "This only strengthens our conviction that the value is in the application and workflow layer, which is where we excel." As a result of strong client interest in AIP, Palantir experienced 30% year-over-year revenue growth to $725.5 million in the third quarter. This contributed to its Q3 net income doubling from $73.4 million in 2023 to $149.3 million in 2024. Not only that, free cash flow rose 60% to $434.5 million. As of the end of the third quarter, the company had $768.7 million in cash and equivalents on its books, and marketable securities of $3.8 billion. This overshadowed its total liabilities of $1.2 billion. When you consider Palantir's total assets of $5.8 billion, the company is in an outstanding financial position, with a substantial cash pile it can deploy on efforts to expand its business. SoundHound provides a voice AI software platform that can understand human speech in 25 languages. Its share price in the last year were fueled by a few factors. First, in Q3, its sales soared by 89% year over year to a record $25.1 million. Second, investment bank H.C. Wainwright raised its price target on SoundHound stock from $8 to $26 in December. And lastly, it's a popular meme stock. But these are short-term tailwinds. The question is whether SoundHound AI is a good investment for the long haul. While the stock dropped in price by 6% in the last month, it completed important acquisitions, including its $80 million purchase of Amelia AI, that strategically positioned it for long-term success. These acquisitions enabled SoundHound to reduce its reliance on its largest customer from 72% of Q3 2023 sales down to 12% in Q3 2024. Moreover, in 2023, more than 90% of its revenue came from the automotive sector. Now, sales are more diversified across multiple industries, including restaurants and financial services. SoundHound's balance sheet is also excellent. Its Q3 assets totaled $499.7 million, with $135.6 million in cash and equivalents, versus total liabilities of $203.7 million. SoundHound management estimated that its 2024 revenue would be in the $82 to $85 million range, up from $45.9 million in 2023. This year, it anticipates sales will rise further to a range of $155 to $175 million. Both Palantir and SoundHound AI offer reasons to invest. But when it comes to answering the question of which is the better long-term AI investment, the winner is Palantir for several reasons. Palantir is profitable, while SoundHound booked a net loss of $21.8 million in Q3. In addition, comparing their price-to-sales (P/S) ratios suggests that Palantir's stock is the better value. The P/S ratio tells you how much investors are willing to pay for a dollar's worth of a company's revenue. While SoundHound's P/S multiple has dropped in 2025 after reaching a peak toward the end of 2024, it's still higher than Palantir's at the time of this writing. Adding to its successes, Palantir was added to the S&P 500 index last year. Putting this all together, Palantir's successful AI Platform, strong financials, and better share price valuation make it the superior AI stock to invest in for the long run.

Why SoundHound AI Stock Is Jumping Today | The Motley Fool

After some big sell-offs early in 2025's trading, SoundHound AI stock is surging today thanks to some bullish macroeconomic news. But while the company's share price is getting a boost, there is some news about competitive developments in the automotive conversational AI space that appears to have caused the stock to give up some of its early gains. Following some bearish macroeconomic indicators that prompted big sell-offs for growth stocks, investors actually got some bullish macro news today. The Bureau of Labor Statistics (BLS) published its Producer Price Index (PPI) report, and the data came in better than anticipated. The PPI, which tracks prices received by domestic producers for their output, showed a year-over-year increase of just 0.2% in December. Meanwhile, the average economist estimate had called for a 0.4% increase in the month. The lower-than-anticipated PPI data has delivered some comforting news for investors on the inflation front. Last week, the BLS published a report showing that 256,000 jobs had been added in December -- but economists had only forecast 155,000 job additions for the month. The report raised inflationary concerns and prompted big valuation pullbacks for SoundHound AI and other growth stocks, but valuations are now seeing some rebound number thanks to the PPI report. Mercedes-Benz announced today that it had selected Alphabet's conversational AI platform for its Mercedes CLA car and other vehicles. Alphabet's Automotive AI Agent platform runs through its Google Cloud infrastructure network and will be paired with a new operating system and upgraded virtual assistant. Alphabet's moves in the space highlight the potential for SoundHound AI to face rising competition in one of its core markets, and may have caused the software specialist's stock to give up some of its early gains today. Tomorrow, the BLS will publish its Consumer Price Index (CPI) report -- and the related read on inflation will likely spur big movement for stocks again. CPI reports have recently been even bigger market movers than the PPI reports, and investors will be looking to the report to weigh the macroeconomic backdrop for growth stocks. With the company valued at roughly $4.8 billion and trading at approximately 29 times this year's expected sales, SoundHound AI has a growth-dependent valuation that predisposes its stock to big swings on macro news. Today's PPI report suggests that investors could also be getting good news with tomorrow's CPI data, but there are also no guarantees the report will be similarly bullish.

SoundHound vs. GitLab: Better Mid-Cap AI Stock Investment for 2025 | The Motley Fool

When searching for stocks that have the potential to be the next big artificial intelligence (AI) winners, stocks with market capitalizations (market caps) under $10 billion offer a good place to start. These companies have a lot more room to grow and their stocks to move much higher if their businesses prove to be highly successful. Both SoundHound AI (SOUN -0.23%) and GitLab (GTLB 6.71%) are two mid-cap stocks that have shown some solid early success in AI. Let's look at which of these two stocks might be the better AI investment for the rest of 2025. While they are different, SoundHound and GitLab are both software platforms using AI to grow their businesses. SoundHound operates a voice AI platform called Houndify that helps voice assistants interact in a more natural and conversational manner. This is done through the combination of speech-to-meaning technology and deep-meaning-understanding technology, which can help AI voice assistants process speech in real-time while recognizing a user's intent. The company has made strong early inroads in the automobile and restaurant spaces, while its recent acquisition of Amelia has given it exposure to several other industry verticals, including the telecom, healthcare, insurance, retail, and banking spaces. GitLab, on the other hand, operates a DevSecOps platform that software developers use to help create software in a secure environment where cybersecurity has been integrated throughout the entire development process. It also offers customers AI-powered tools that help programmers write code by offering suggestions and through automation. Both companies have shown strong revenue growth. SoundHound has been growing its revenue more quickly, albeit off a much lower base. Last quarter (fiscal 2025's Q3), it grew its revenue by 89% year over year to $25.1 million, which was also helped by a partial quarter of revenue from its Amelia acquisition that closed in August. GitLab, meanwhile, grew its revenue by 31% to $196 million. The company has grown its revenue by 30% to 40% each of the past six quarters. While SoundHound has been growing its revenue more quickly, it is notable that GitLab has much stronger gross margins. This is important, as higher gross margins mean that revenue more easily flows to profits. Last quarter, SoundHound had gross margins of 49%, while GitLab's gross margins were 89%. That's a huge difference. I would expect SoundHound's gross margins to expand as it increases its revenue, but the gap is currently very wide. When it comes to future opportunities, SoundHound has the larger opportunity but also the greater risk associated with it. GitLab, meanwhile, has a more established, solidly growing business. Its growth is being driven by its GitLab Duo AI add-on offering, as well as more customers opting to use its higher-tier platform Ultimate, which now makes up 48% of its customer base. The introduction of its GitLab Dedicated solution, which can give customers data isolation and regional data residency, has also been gaining strong traction. SoundHound, meanwhile, is looking to transform itself into an AI commerce voice platform that can answer complex questions across industry verticals that have different types of interactions and their own jargon. For example, this could be the platform helping a customer schedule a doctor's appointment over the phone and collecting healthcare insurance information from them. Or it could be the platform helping a banking customer with wiring instructions over the phone. This is a huge opportunity but also could be a difficult one to fulfill. It will also come with a lot of competition. For example, Salesforce has developed autonomous AI agents to help with customer service tasks, and it acquired AI voice assistant developer Tenyx to add voice technology to its AgentForce solution. Given Salesforce's dominant position in customer relationship management software and large resources, it will undoubtedly be a strong competitor. Meanwhile, Microsoft also owns a conversational AI company that has been a leader in the healthcare sector and other fields with Nuance. From a valuation standpoint, GitLab is the much cheaper stock, trading at a price-to-sales (P/S) multiple of 9.9 times 2025 analyst estimates versus over 23.5 times for SoundHound. It is also worth remembering that GitLab's gross margins are much higher than SoundHound's. Given GitLab's much cheaper valuation, vastly superior gross margins, strong revenue growth, and more established business model, I prefer it to SoundHound for the rest of 2025. SoundHound has a huge opportunity in front of it, but it will likely face a lot of competition trying to reach its goal of becoming the leader in AI voice commerce technology.