In the rapidly evolving landscape of artificial intelligence, two companies stand out for their early commitment to AI integration: SoundHound AI (NASDAQ: SOUN) and C3.ai (NYSE: AI). Both firms have navigated the AI waters long before the recent generative AI boom, which gained momentum following OpenAI’s release of ChatGPT in late 2022. While C3.ai has been publicly traded since 2020, SoundHound AI added “AI” to its name in April 2022, reflecting a strategic pivot toward this burgeoning field. Despite both companies being unprofitable and branded as growth stocks, contrasting valuations highlight their differing market positions. C3.ai trades at 5.5 times sales, while SoundHound AI is valued at a steep 31 times sales.
The landscape is currently crowded, with numerous firms incorporating “AI” into their products and promotional efforts. However, SoundHound AI and C3.ai are distinguished not just by their names but by their pioneering endeavors in AI technology. Founded in 2005 and 2009 respectively, both companies have retained close ties to their founders; C3.ai’s Thomas Siebel remains as executive chairman, while SoundHound AI’s co-founders actively manage the company. The origins of their technology are deeply rooted in their early projects: SoundHound AI’s song-identification tool utilized machine learning, while C3.ai initially specialized in predictive data analytics for energy management. These foundational experiences continue to shape their current offerings.
SoundHound AI’s concentrated focus on voice recognition technology has given it a competitive edge. What began as a simple song-identification app has expanded into sophisticated voice-driven solutions for applications such as drive-through orders and automotive infotainment systems. In contrast, C3.ai has diversified its focus across various sectors, including energy and the Internet of Things, resulting in a broader but less focused portfolio.
In terms of business prospects, both companies exhibit classic growth-stock characteristics, prioritizing rapid revenue increases over immediate profitability. However, SoundHound AI’s growth trajectory has significantly outpaced that of C3.ai. C3.ai’s sales have increased by 31% over the past three years, while SoundHound AI’s revenues have more than quintupled during the same period. The latter’s strong performance is further bolstered by a backlog of long-term contracts, estimated at $1.2 billion, with an average contract term of around seven years. This level of sustained demand positions SoundHound AI favorably as it looks to increase revenue streams in the upcoming years.
Despite SoundHound AI’s impressive growth, its steep valuation raises concerns. At 31 times sales, it is substantially more expensive than C3.ai’s valuation of 5.5 times sales, which aligns it with mature tech giants such as Cisco Systems. While SoundHound AI’s premium valuation could be justified by its future revenue potential, it remains a point of contention for investors who prioritize value metrics. In this regard, C3.ai earns a victory for its more reasonable price-to-sales ratio, despite SoundHound AI’s superior growth statistics.
Ultimately, the comparison between these two AI pioneers favors SoundHound AI, which emerges as the stronger candidate for investment. Winning two out of three rounds in this analysis, SoundHound AI provides compelling metrics: robust revenue growth, a focused technological expertise, and a significant backlog of contracted revenues. While C3.ai is a respectable entity in its own right, it lacks the momentum and specialized focus that SoundHound AI offers.
Investors should approach the prospect of buying SoundHound AI with caution. Notably, the Motley Fool Stock Advisor analyst team has identified ten stocks they believe are optimal buys at this time, and SoundHound AI is not among them. Historical data underscores the value of good investment choices; for instance, an investment in Netflix shortly after it made such a list in 2004 would now be worth over $500,000. Therefore, while SoundHound AI may represent a promising opportunity in the AI sector, potential investors should weigh this against other vetted options in the market.
See also
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