Photo credit: www.fool.com
SoundHound AI has emerged as a standout performer in the stock market over the last year, with an impressive increase of 602% attributed to the company’s rapid growth and a strategic investment from AI leader Nvidia. As of now, SoundHound’s market capitalization stands at approximately $4.7 billion. However, the stock has experienced significant volatility, showing a decrease of 35% in early 2025 despite the absence of any clear company-specific issues to trigger such declines.
The steep drop in SoundHound’s stock could be largely linked to its high valuation, currently trading at 58 times sales—placing it at a premium compared to Nvidia, which boasts a larger size and faster growth trajectory. Analysts suggest that SoundHound’s median price target over the next year is around $9, indicating a potential decline of nearly 30% from current levels. This high valuation may steer investors towards other companies poised to thrive in the AI sector, namely C3.ai and DigitalOcean.
Both C3.ai and DigitalOcean have been on a steady growth path and are now trading at more attractive valuations, potentially allowing them to surpass SoundHound’s market capitalization within the next year. Here’s a closer examination of both companies.
1. C3.ai
C3.ai has garnered attention with a 12-month consensus price target of $40, representing a potential 30% increase from its current pricing. Should C3.ai achieve this target, its market capitalization could rise to nearly $5.2 billion, surpassing SoundHound if the latter’s stock drops as estimated. Recent earnings reports showcase the company’s capability to meet market expectations, with a 29% year-over-year revenue increase to $94.3 million for the second quarter of fiscal 2025.
Additionally, C3.ai has raised its revenue guidance for the year to $388 million, reflecting a significant growth projection of 25% compared to fiscal 2024, when revenue growth was slower at 16%. The firm operates in a promising market, with Mordor Intelligence projecting a $89 billion revenue opportunity in the cloud AI services sector, with a compound annual growth rate of 32% expected until 2030. C3.ai’s extensive suite of over 100 enterprise AI applications across diverse sectors continues to position it advantageously in this rapidly expanding space.
C3.ai has also strengthened its partnerships with major cloud providers like Microsoft, Amazon Web Services, and Google Cloud, facilitating stronger customer acquisition and increased sales momentum. A significant portion of its agreements were completed through these partnerships, indicating continued robust growth prospects.
Lastly, C3.ai’s valuation is more favorable, trading at a sales multiple of 11. With an improving growth profile, it appears well-positioned to sustain an upward trajectory in both stock price and overall market valuation.
2. DigitalOcean
DigitalOcean is strategically navigating the expanding landscape of cloud-based AI services. As a provider of on-demand cloud infrastructure, DigitalOcean is leveraging Nvidia’s GPU technology to enable customers to efficiently train AI models and manage other resource-heavy tasks without requiring substantial hardware investments.
This approach is likely to result in enhanced revenue as customers adopt these advanced offerings, with an 11% increase in average revenue per user (ARPU) noted in the third quarter of 2024. Earnings reported an 18% year-over-year increase to $0.52 per share, outpacing a 12% revenue growth. DigitalOcean’s forecasting projects revenues of $776 million for 2024, up by 12% from the previous year, with expectations of even stronger growth in the subsequent years.
DigitalOcean’s revenue guidance has already been revised upward from initial projections, and with the incorporation of AI-centric services, the company anticipates tapping into a larger addressable market, which is estimated to reach $213 billion by 2027.
Investing in DigitalOcean now may be beneficial, as its current valuation at 4.4 times sales and 18 times forward earnings presents an attractive entry point. Analysts are predicting a median price target of $40 within the year, indicating a potential 19% increase. Achieving this target could elevate DigitalOcean’s market cap to $3.7 billion, positioning it to potentially surpass SoundHound under the right circumstances.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, DigitalOcean, Microsoft, and Nvidia. The Motley Fool recommends C3.ai and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Source
www.fool.com