While both companies have found success with AI solutions, one is likely to be a better investment in the long run.
Artificial intelligence (AI) has gone mainstream, fueling an incredible rally in many tech stocks, most notably AI semiconductor chip maker Nvidia.
Because the AI market is still in its early stages, there are ample opportunities to capitalize on long-term AI trends. Forecasts show that the AI industry will expand over the next few years, growing from $136 billion in 2023 to $827 billion by 2030.
Two promising AI companies to consider investing in are SoundHound AI (SOUN -1.40%) and C3.ai (AI -1.45%), and not just because they have AI in their names: Both companies are seeing significant revenue growth as customers adopt their AI products.
But which of the two is the better investment to benefit from AI’s multiyear industry growth? Let’s consider each one to find the answer.
SoundHound AI Case Study
SoundHound’s AI solutions are centered around voice recognition, with the company’s technology being used to answer customer service calls, process food orders at drive-thrus and enable drivers to use voice commands in their cars.
SoundHound’s client list is an impressive list, including restaurant chains Chipotle and Jersey Mike’s and automakers Hyundai and Stellantis, the parent company of Chrysler.
The company’s voice platform can understand 25 languages, and this multilingual capability is critical as it enables the company to generate robust revenue from every region it operates in around the world.
For example, in the first quarter, SoundHound saw significant year-over-year revenue growth across all of its territories.
Region Q1 2024 Year-over-Year Change in Revenue 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 change. Table by authors.
The Americas region saw a significant year-over-year increase in sales due to SoundHound’s acquisition of SYNQ3, a voice AI business focused on the restaurant industry.
SoundHound’s first-quarter revenue increased 73% year over year, signaling a strong start to 2024. This performance is expected to continue throughout the year. The company expects full-year 2024 revenue to reach at least $65 million, a significant increase from $45.9 million in 2023, thanks in part to the SYNQ3 acquisition.
Why Invest in C3.ai?
C3.ai helps clients implement artificial intelligence in their organizations through a suite of custom and pre-built AI software that addresses a variety of business needs, including fraud detection for banking and energy management for utility companies.
Like SoundHound, C3.ai has seen impressive year-over-year revenue growth thanks to customers such as Shell, Consolidated Edison and the U.S. government. The company’s sales for fiscal 2024, which ended April 30, rose 16% to $310.6 million from $266.8 million a year earlier.
C3.ai’s federal government revenue is expected to more than double in fiscal year 2024 compared to the previous year. Government customers include the U.S. Air Force, which uses C3.ai’s software to predict when aircraft will need maintenance.
Building on its strong momentum in fiscal 2024, C3.ai expects revenue growth to continue in fiscal 2025, reaching at least $370 million in sales, representing another year of double-digit revenue growth.
As part of its growth strategy, C3.ai is targeting international adoption of its solutions: of its $310.6 million in fiscal 2024 revenue, $269.9 million will come from North America, with opportunities to grow sales in other regions.
Choosing between SoundHound AI and C3.ai
Despite the strong revenue growth, neither SoundHound AI nor C3.ai is profitable. In the first quarter, SoundHound suffered a net loss of $33 million. C3.ai’s fourth-quarter net loss was $72.9 million.
Lack of profitability isn’t a problem, as it’s common for fast-growing tech companies to sacrifice margins in order to expand, but ideally we’d like to see losses shrink over time.
SoundHound is another example: The company is forecasting a net loss of $88.9 million in 2023, down from a net loss of $116.7 million in 2022.
The first quarter was an exception: The acquisition of SYNQ3 increased operating expenses, causing the net loss to increase to $33 million from $27.4 million a year ago.
Longer term, SoundHound expects to become profitable: CFO Nitesh Sharan said, “We expect revenue to exceed $100 million and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) to be profitable in 2025.”
The same is not true for C3.ai: The company’s net losses have increased each of the past three years, from $192.1 million in fiscal 2022 to $279.7 million in fiscal 2024.
Another factor to consider is the ratings of Wall Street analysts, who agree that SoundHound has a median stock price of $8 and a rating of “Buy.”
For C3.ai, the consensus is a “Hold” rating with a median share price of $29.50. This indicates that Wall Street believes in an upside for SoundHound stock, but that’s not the case for C3.ai given the respective share prices at the time of writing.
SoundHound’s strategic acquisition of SYNQ3 will help it expand in the restaurant sector, and combined with its global revenue growth and goal of reaching EBITDA profitability next year, makes SoundHound the better AI investment over C3.ai at the moment.
That said, SoundHound’s share price is volatile, so if you buy shares you should be prepared for some rollercoaster price movements in the short term, but keep an eye on it in the long term.
