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Advances in artificial intelligence (AI) are rapidly reshaping the global economy through a transformative impact on business productivity. SoundHound AI(NASDAQ: SOUN) and C3.ai(NYSE: AI) are two small-cap companies poised to turn their unique AI-powered applications into significant long-term growth opportunities. Even with both stocks selling off sharply at the start of 2025, their positive outlook suggests these AI disrupters are ready to rebound.
Let's explore which of these two AI stocks could be a better addition to your portfolio.
Person utilizing a computing device with an abstract representation of a magnifying glass searching for artificial intelligence.
Image source: Getty Images.
SoundHound AI: A differentiated Agentic AI
If you have ever interacted with an automobile's voice-enabled infotainment system or placed a meal order with a restaurant drive-thru virtual assistant, there's a good chance you have already come across SoundHound AI's voice solutions. The company has emerged as a leader in conversational AI, seen as a more natural method of engaging with technology compared to text-based inputs.
For the year ended Dec. 31, 2024, total revenue reached $84.7 million, up a spectacular 85% year over year. Management cited strong demand with a cumulative subscriptions and bookings backlog of $1.2 billion, representing a runway for business it expects to realize in the next few years.
For 2025, the company is targeting full-year revenue between $157 million and $177 million, an annual increase of 97% at the midpoint. While not currently profitable, SoundHound AI expects to achieve positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by the end of this year.
In many ways, the best is yet to come for SoundHound AI, especially considering its early momentum in expanding its portfolio of solutions. The company's agentic AI customer service and employee experience applications could prove to be game changers. An ecosystem of AI agents can respond to complex inquiries, autonomously performing tasks with practical uses that could potentially replace the need for human-operated call centers.
Investors who believe SoundHound AI will consolidate its lead in these high-growth areas of voice-driven, agentic AI have plenty of reasons to buy the stock and hold it for the long run.
C3.ai: Enterprise AI leadership
C3.ai doesn't quite have the same flashy consumer-focused voice interface as SoundHound AI, yet the company is making some major moves in the field of enterprise AI. Through the company's C3 AI platform, customers can develop, deploy, and operate custom AI-powered applications via an intuitive low-code architecture. The company also offers industry-specific AI programs with generative AI capabilities, empowering businesses with data-driven analysis.
The attraction of C3.ai as a possible investment lies precisely in this commercial traction, with an impressive list of major corporations and government agencies as current customers. In November 2024, C3.ai announced a strategic alliance with Microsoft to feature its portfolio of products on the Azure cloud ecosystem as a preferred vendor, contributing to a surge in business.
For the last reported fiscal third quarter (for the period ended Jan. 31), total revenue of $99 million climbed by 26% year over year, even accelerating from the 18% growth rate in the prior-year quarter. For the full year, C3.ai is targeting revenue growth of 24% to 27% with a narrowing financial loss.
Compared to SoundHound AI, C3.ai is the larger company in terms of total revenue, yet commands a lower market capitalization of $3.1 billion compared to SoundHound AI at $4.1 billion. That difference is evident in each stock's forward price-to-sales ratio (P/S), where C3.ai stands out as a relative bargain at a forward P/S of 8 compared to SoundHound AI at 25. The case for C3.ai being the AI stock to buy is centered around a view that the company is undervalued with its proven technology on track to deliver long-term growth.
I'm bullish on SoundHound AI and C3.ai, viewing both stocks as compelling buy-the-dip opportunities. If forced to choose just one as the better AI stock right now, I believe SoundHound AI will outperform due to its stronger growth outlook and differentiated voice-AI offering. For investors with a long-term time horizon, it's a great option for tech sector exposure within a diversified portfolio.
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Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. 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.
