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Artificial intelligence (AI) stocks went on an absolute tear in 2023, as several research reports estimate this disruptive space to be valued at more than $1 trillion by the end of this decade. Given the rapidly expanding addressable market, there are several companies targeting the lucrative AI segment right now.
Two up-and-coming contenders in the AI space right now are Soundhound AI (SOUN) and C3.ai (AI). Let’s see which AI stock is a better buy right now.
Is C3.ai Stock a Good Buy Right Now?
C3.ai stock gained over 156% in 2023, valuing it at $3.6 billion by market cap. It offers more than 40 enterprise-focused AI-powered applications to public and private sector companies. Some of C3.ai’s big-ticket clients include energy giant Shell (SHEL) and the U.S. Air Force. Both of these organizations use C3.ai’s software tools to predict failures related to systems and equipment, which increases operational efficiencies.
In fiscal Q2 of 2024 (ended in October), C3.ai reported revenue of $73 million, an increase of 17% year over year due to rising subscription sales and a widening customer base. However, C3.ai remains unprofitable, reporting an operating loss of $79 million in Q2, up from $72 million in the year-ago period.
C3.ai ended Q2 with $762 million in cash, providing it with the flexibility to offset its cash burn rates. But in the last two quarters, C3.ai has reported a free cash outflow of over $70 million, which suggests the company should shore up its profit margins in the next two years.
Following the stock's breakout performance in 2023, analysts see limited upside for AI stock in the 12 months ahead. Out of the 14 analysts covering C3.ai stock, three recommend “strong buy,” seven recommend “hold,” two recommend “moderate sell,” and two recommend “strong sell," for an average rating of “hold."
Plus, the average target price for C3.ai stock is $26.42, which is an 8% discount to current levels.
The Bull Case for Soundhound AI Stock
Soundhound AI uses artificial intelligence to convert audio into data. Founded in 2005 as a music recognition application, Soundhound has since pivoted into the voice recognition domain. Its clients primarily include companies in the automobile and restaurant sectors.
Recently, Soundhound AI partnered with burger chain White Castle to automate the latter’s drive-thru process. The AI company claimed it processes an order in less than a minute, with an order completion rate of 90%.
Moreover, Soundhound’s merger with SYNQ3, an AI-based voice leader in the restaurant space, allowed it to add 25 enterprise customers, which should drive higher revenue growth going forward.
In Q3 of 2023, Soundhound reported revenue of $13.3 million, an increase of 19% year over year. It also ended the quarter with an order backlog of $341 million, which is very impressive.
Similar to most other growth stocks, SOUN is sacrificing profit margins for top-line numbers. It reported an operating loss of $14.5 million, narrower than a loss of $27 million in the year-ago period. Analysts expect sales to more than double from $31 million in 2022 to $70 million in fiscal 2024. Priced at 7.3 times forward revenue, Soundhound is not very expensive, particularly if it can continue to grow its top line at the current pace.
Each of the four analysts covering Soundhound stock has a “strong buy” recommendation. The average target price for SOUN stock is $4.75, indicating an upside potential of over 120% - and making this AI penny stock a better buy than C3.ai at current levels.
