Artificial intelligence (AI) has entered the mainstream, helping to propel many tech stocks to staggering gains, most notably AI semiconductor chipmaker Nvidia.
Plenty of opportunity remains to invest in the secular trend of AI, since the market is still in its infancy. Forecasts estimate the AI industry will see years of expansion, from $136 billion in 2023 to $827 billion by 2030.
Two promising AI companies to consider investing in are SoundHound AI (NASDAQ: SOUN) and C3.ai (NYSE: AI) -- and not because they have AI in their names. Both are seeing strong revenue growth as customers adopt their AI products.
But between the two, is one a better investment to benefit from AI's multiyear industry growth? Let's take a look at each to arrive at an answer.
The case for SoundHound AI
SoundHound's AI solutions center around speech recognition. Its tech is employed to answer customer service calls, process food orders at drive-thrus, and allow drivers to use voice commands in a vehicle.
SoundHound has an impressive list of customers. These include restaurant chains Chipotle and Jersey Mike's, as well as automakers Hyundai and Chrysler owner Stellantis.
Its voice platform can understand 25 languages. This multilingual capability is important, allowing the company to generate robust revenue from every geographic area it operates in throughout the world.
For example, in the first quarter, all of SoundHound's geographic regions experienced strong year-over-year revenue increases.
| Region | 2024 Q1 Revenue | YOY Change |
|---|---|---|
| Americas | $3.7 million | 375% |
| Europe, Middle East, and Africa (EMEA) | $3.4 million | 26% |
| Asia | $4.5 million | 39% |
| Total | $11.6 million | 73% |
Data source: SoundHound AI. YOY = year-over-year. Table by author.
The outsized year-over-year sales growth seen in the Americas region was due to SoundHound's acquisition of SYNQ3, a voice AI business focused on the restaurant industry.
SoundHound's 73% year-over-year sales increase in Q1 represents a strong start to 2024, and this performance is expected to continue throughout the year. The company estimates 2024 full-year revenue to reach at least $65 million, a substantial jump up from 2023's $45.9 million, in part due to the SYNQ3 acquisition.
Reasons to invest in C3.ai
C3.ai helps customers implement artificial intelligence into their organizations through a suite of custom and pre-built AI software. This software tackles various business needs, including fraud detection for banks and energy management for utility companies.
Like SoundHound, C3.ai is experiencing excellent year-over-year revenue growth thanks to customers such as Shell, Consolidated Edison, and the U.S. government. In its 2024 fiscal year, ended April 30, the company's sales increased 16% to $310.6 million, compared to the prior year's $266.8 million.
C3.ai's revenue from its federal business more than doubled in fiscal 2024 versus the previous year. Government customers include the U.S. Air Force, which uses C3.ai's software to predict when its aircraft will require maintenance.
Given its strong momentum in fiscal 2024, C3.ai expects its revenue growth to continue into fiscal 2025, with sales reaching at least $370 million. This would represent another year of double-digit revenue expansion.
C3.ai is targeting adoption of its solutions internationally as part of its growth strategy. In fiscal 2024, $269.9 million of its $310.6 million in revenue came from North America, so the opportunity exists to increase sales in other regions.
Deciding between SoundHound AI and C3.ai
Despite strong revenue growth, neither SoundHound AI nor C3.ai are profitable. In Q1, SoundHound suffered a net loss of $33 million. C3.ai's fiscal Q4 net loss totaled $72.9 million.
The lack of profitability isn't a concern, since it's common for fast-growing tech companies to sacrifice profits to fuel business expansion. However, ideally, you want to see losses shrinking over time.
That's the case for SoundHound. Its 2023 net loss was $88.9 million, a reduction from 2022's net loss of $116.7 million.
Q1 was an exception. The company's SYNQ3 acquisition caused operating expenses to increase, resulting in net losses edging up to $33 million compared to the prior year's $27.4 million.
Over the long term, SoundHound foresees becoming profitable. CFO Nitesh Sharan stated, "we still expect to cross $100 million in revenue and deliver adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) profitability in 2025."
The same isn't true for C3.ai. The firm's net losses have increased annually for the last three fiscal years, from $192.1 million in fiscal 2022 to $279.7 million in 2024.
Another factor to consider is the assessment of Wall Street analysts. The consensus among them is a "buy" rating for SoundHound with a median share price of $8.
For C3.ai, the consensus is a "hold" rating, with a $29.50 median share price. This indicates Wall Street's belief in upside for SoundHound shares, but not for C3.ai, given the stock price of each at the time of this writing.
Based on SoundHound's strategic acquisition of SYNQ3, which helps it expand its business in the restaurant sector, combined with its global revenue growth and goal of achieving EBITDA profitability next year, SoundHound edges out C3.ai as the better AI investment at this time.
That said, SoundHound stock is volatile, so be prepared for a roller-coaster ride in the short term if you buy shares, and keep your eye on the long haul.
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Robert Izquierdo has positions in Chipotle Mexican Grill and Nvidia. The Motley Fool has positions in and recommends Chipotle Mexican Grill and Nvidia. The Motley Fool recommends C3.ai and Stellantis. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
