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In this piece I have evaluated two artificial intelligence (AI) stocksSoundHound AI (SOUND) and C3.ai (AI), use TipRanks’ comparison tool to see which one is better. A closer look suggests a neutral view on SoundHound and a bearish view on C3.ai.
SoundHound AI provides conversational intelligence through its independent voice AI platform, helping companies deliver conversational experiences to their customers. Meanwhile, C3.ai is an enterprise AI company that provides software-as-a-service applications that enable customers to develop, deploy, and operate large-scale AI applications across infrastructures.
SoundHound AI stock is up 128% this year, which puts the return over twelve months in the green at 97%. On the other hand, C3.ai shares are down 6.5% this year and are down 35% in the past year.
With such a dramatic difference in their share price performance year to date, the significant difference between their valuations is no surprise. Since neither company is profitable, we use their price-to-sales (P/S) ratios to compare their valuations.
We can also compare them to the broader applications software industry, which trades at a price-to-earnings ratio of 8.7x, in line with the three-year average.
SoundHound AI (NASDAQ:SOUN)
With a price-to-earnings ratio of 32x, SoundHound AI is certainly not cheap and trades at a significant premium to the application software industry, although the fact that it is an AI stock suggests that some premium is justified. However, based on this rating and other factors, a neutral view seems appropriate.
First off, SoundHound AI isn’t profitable, which should give investors pause, especially with a market cap of $4.5 billion. The company’s net profit margins are also not very encouraging: they stand at -186% in the last twelve months and -194% in 2023. Although they are moving in the right direction every year, caution seems necessary for now.
What’s particularly concerning is that the company forecast profitability in 2023 but fell short, posting a net loss of $88.9 million and an adjusted loss of 40 cents per share for the year.
Company insiders even appear to have taken profits, as SoundHound AI shares have risen this year. The approx $737,000 in informational sales transactions are only part of the story, as quite a few Auto Sell trades also suggest that insiders may not expect the shares to rise further in the near term.
On the other hand, SoundHound AI is expanding its partnership with top 10 car manufacturer Stellantis (STLA), which owns many well-known car brands such as Dodge, Ram and Jeep. The company’s voice AI technology is being added to more of the company’s 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 over the application software industry may not be justified, at least for now. SoundHound AI looks like a company that still needs to grow to its current valuation, and it may take some time before that happens at current levels.
What is the price target for SOUN stock?
SoundHound AI has a Strong Buy consensus rating based on four Buys, one Hold, and zero Sell ratings assigned in the last three months. For $7.50, the average price target of SoundHound AI implies an upside potential of 55.3%.
View more SOUN analyst ratings
C3.ai (NYSE:AI)
With a P/S of 11.4x, C3.ai looks much more reasonable than SoundHound. However, its profitability prospects look even worse than SoundHound’s, so a bearish view 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 last fiscal year.
However, the company’s net losses are widening, growing from $268.8 million to $279.7 million annually. Meanwhile, despite extremely negative net profit margins, SoundHound’s net losses fell from $116.7 million in 2022 to $88.9 million in 2023.
Furthermore, there appear to be no forecasts for when C3.ai will become profitable. So an important question is whether the company can ever be profitable. The fact that it serves the business 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 (ADBE), but such partnerships are not uncommon in the AI space. It will be interesting to see if Microsoft continues this partnership in light of its close and growing ties with OpenAI.
So C3.ai remains a bit of a show-me story for now, although this could change.
What is the price target for AI stock?
C3.ai has a Hold consensus rating based on four Buys, five Holds, and two Sell ratings assigned in the last three months. For $32.33, the average price target of C3.ai implies an upside potential of 20.5%.
Conclusion: Neutral on SOUN, bearish on AI
Both SoundHound AI and C3.ai have the potential for long-term excellence, but it just feels a little early to take the plunge into these stocks. I’d like to see more progress toward profitability before becoming more constructive on either.