In this piece, I Two AI Stocks EvaluatedSoundHound AI (Son) And C3.ai (artificial intelligence)using TipRanks’ comparison tool to see which is better. A deeper look indicates a neutral view on SoundHound and a bearish view on C3.ai.
SoundHound AI delivers AI through its independent voice AI platform, enabling businesses to deliver conversational experiences to their customers. Meanwhile, C3.ai is an enterprise AI company that provides software-as-a-service applications to enable customers to develop, deploy, and operate large-scale enterprise AI applications across infrastructures.
SoundHound AI stock is up 128% YTDresulting in a 12-month return of 97%. On the other hand, C3.ai shares are down 6.5% year-to-date It has decreased by 35% over the past year.
With such a large gap in the two companies’ share price performances to date, the large gap between their valuations is not surprising. Since neither company is profitable, we will use the price-to-sales (P/S) ratio to measure their valuations relative to each other.
We can also compare it to the broader software applications sector, which is trading at a P/E of 8.7x, in line with its three-year average.
SoundHound AI (NASDAQ:SOUN)
At a price-to-sales ratio of 32x, SoundHound AI is certainly not cheap, trading at a significant premium to the Application Software industry, although the fact that it is an AI stock suggests that some of the premium is justified. However, based on this valuation and other factors, a neutral view seems appropriate.
First, SoundHound AI is not profitable, which should make investors hesitate, especially with a market cap of $4.5 billion. The company’s net income margins are also not very encouraging, at -186% over the past 12 months and -194% for 2023. While they are trending in the right direction each year, caution seems warranted at this point.
Particularly worrying is that the company had expected to be profitable in 2023 but fell short, reporting a net loss of $88.9 million and an adjusted loss of 40 cents per share for the year.
In fact, it appears that company insiders have been making a profit, as SoundHound AI shares have soared this year. $737,000 in information sales transactions These developments are only part of the story, as several automatic sell transactions suggest that insiders may not expect the stock to rise much further in the near term.
On the other hand, SoundHound AI is expanding its partnership with Stellantis, a top 10 automaker. (STLA)which owns several well-known car brands including Dodge, Ram and Jeep. The company’s voice AI technology is being added to more car brands in Europe, which bodes well for the long term. In fact, SoundHound’s AI voice assistant is already live and in production in Stellantis’ Peugeot, Vauxhall and Opel vehicles in 11 markets.
However, the lack of earnings suggests that such a high valuation and premium to the software industry may not be justified, at least for now. SoundHound AI appears to be a company that has yet to grow to its current valuation, and it may be some time before that happens at current levels.
What is the target price for SOUN stock?
SoundHound AI has a Strong Buy rating based on four Buys, one Hold, and zero Sell ratings assigned over the past three months. At $7.50, SoundHound AI Average Target Price Indicates a potential upside of 55.3%.
C3.ai (NYSE: AI)
At a price-to-sales ratio of 11.4x, C3.ai’s valuation looks more reasonable than SoundHound’s. However, its profitability prospects look worse than SoundHound’s, so a negative outlook seems appropriate.
On a net income margin basis, C3ai actually looks better than SoundHound, as its margin improved from -101% in the fiscal year ending April 2023 to -90% in the most recent fiscal year.
However, the company’s net losses widened, rising from $268.8 million to $279.7 million year-over-year. Meanwhile, despite very negative net income margins, SoundHound’s net losses narrowed from $116.7 million in 2022 to $88.9 million in 2023.
Additionally, there doesn’t seem to be any predictions as to when C3.ai will become profitable. Therefore, the main question is whether the company will be able to turn a profit at all. The fact that it serves the enterprise market is encouraging, but whether its services are unique remains to be seen.
C3.ai has strategic partnerships with Microsoft. (MSFT) Via Azure and Adobe (literary)But such partnerships are not unusual in the AI space, and it will be interesting to see whether Microsoft continues this partnership given its close and growing relationship with OpenAI.
Thus, C3.ai remains somewhat of a spin-off for now, though that could change.
What is the target price for AI stock?
C3.ai has a consensus rating of four Buys, five Holds and two Sell ratings assigned over the past three months. Priced at $32.33, C3.ai Average Target Stock Price Indicates a potential upside of 20.5%.
Conclusion: Neutral on SOUN, Bearish on AI
Both SoundHound AI and C3.ai have long-term potential to excel, but it seems a bit early to be investing in these stocks. I would like to see more progress toward profitability before I take a more positive stance on either.
