Which AI Stock Is the Best Buy?

In this article, I evaluated two artificial intelligence (AI) stocksAI SoundHound (HER) and C3.ai (IA)using 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 delivers conversational insights through its independent voice AI platform, which enables businesses to deliver conversational experiences to their customers. Meanwhile, C3.ai is an enterprise AI company that provides SaaS applications that enable customers to develop, deploy, and operate enterprise AI applications at scale across multiple infrastructures.

SoundHound AI stock has jumped 128% year-to-datewhich brings its 12-month performance in the green to 97%. On the other hand, C3.ai shares are down 6.5% year-to-date and have fallen by 35% over the past year.

With such a huge difference in share prices since the beginning of the year, the considerable gap between their valuations is not surprising. Since neither company is profitable, we will use their price-to-sales (P/S) ratios to compare their respective valuations.

We can also compare them to the broader application software industry, which trades at a P/S of 8.7x, in line with its three-year average.

SoundHound AI (NASDAQ: SOUN)

At a P/S of 32x, SoundHound AI is certainly not cheap, trading at a considerable premium to the application software sector, although the fact that it is an AI stock suggests that some premium is justified. However, based on this valuation and other factors, a neutral view seems appropriate.

First, SoundHound AI is not 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, standing at -186% for the last 12 months and -194% for 2023. While they are trending in the right direction each year, caution seems warranted for now.

What’s particularly concerning is that the company had forecast profitability in 2023 but failed to achieve it, posting a net loss of $88.9 million and an adjusted loss of 40 cents per share for the year.

In fact, company insiders appear to have taken profits as SoundHound AI’s stock price has soared this year. $737,000 in informational sales transactions are only part of the story, as a number of Auto Sell transactions also suggest that insiders may not expect the stock to rise further in the near term.

On the other hand, SoundHound AI is expanding its partnership with top 10 automaker Stellantis (STLA)which owns many well-known automotive brands like Dodge, Ram and Jeep. The company’s voice AI technology is being added to more of the company’s vehicle 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.

The story continues

However, the lack of profits suggests that such a high valuation and premium to the application software sector may not…