When searching for stocks that have the potential to be the next big artificial intelligence (AI) winners, stocks with market capitalizations (market caps) under $10 billion offer a good place to start. These companies have a lot more room to grow and their stocks to move much higher if their businesses prove to be highly successful.
Both SoundHound AI(NASDAQ: SOUN) and GitLab(NASDAQ: GTLB) are two mid-cap stocks that have shown some solid early success in AI. Let's look at which of these two stocks might be the better AI investment for the rest of 2025.
Strong opportunities ahead
While they are different, SoundHound and GitLab are both software platforms using AI to grow their businesses.
SoundHound operates a voice AI platform called Houndify that helps voice assistants interact in a more natural and conversational manner. This is done through the combination of speech-to-meaning technology and deep-meaning-understanding technology, which can help AI voice assistants process speech in real-time while recognizing a user's intent. The company has made strong early inroads in the automobile and restaurant spaces, while its recent acquisition of Amelia has given it exposure to several other industry verticals, including the telecom, healthcare, insurance, retail, and banking spaces.
GitLab, on the other hand, operates a DevSecOps platform that software developers use to help create software in a secure environment where cybersecurity has been integrated throughout the entire development process. It also offers customers AI-powered tools that help programmers write code by offering suggestions and through automation.
Both companies have shown strong revenue growth. SoundHound has been growing its revenue more quickly, albeit off a much lower base. Last quarter (fiscal 2025's Q3), it grew its revenue by 89% year over year to $25.1 million, which was also helped by a partial quarter of revenue from its Amelia acquisition that closed in August. GitLab, meanwhile, grew its revenue by 31% to $196 million. The company has grown its revenue by 30% to 40% each of the past six quarters.
While SoundHound has been growing its revenue more quickly, it is notable that GitLab has much stronger gross margins. This is important, as higher gross margins mean that revenue more easily flows to profits. Last quarter, SoundHound had gross margins of 49%, while GitLab's gross margins were 89%. That's a huge difference. I would expect SoundHound's gross margins to expand as it increases its revenue, but the gap is currently very wide.
When it comes to future opportunities, SoundHound has the larger opportunity but also the greater risk associated with it. GitLab, meanwhile, has a more established, solidly growing business. Its growth is being driven by its GitLab Duo AI add-on offering, as well as more customers opting to use its higher-tier platform Ultimate, which now makes up 48% of its customer base. The introduction of its GitLab Dedicated solution, which can give customers data isolation and regional data residency, has also been gaining strong traction.
SoundHound, meanwhile, is looking to transform itself into an AI commerce voice platform that can answer complex questions across industry verticals that have different types of interactions and their own jargon. For example, this could be the platform helping a customer schedule a doctor's appointment over the phone and collecting healthcare insurance information from them. Or it could be the platform helping a banking customer with wiring instructions over the phone.
This is a huge opportunity but also could be a difficult one to fulfill. It will also come with a lot of competition. For example, Salesforce has developed autonomous AI agents to help with customer service tasks, and it acquired AI voice assistant developer Tenyx to add voice technology to its AgentForce solution. Given Salesforce's dominant position in customer relationship management software and large resources, it will undoubtedly be a strong competitor. Meanwhile, Microsoft also owns a conversational AI company that has been a leader in the healthcare sector and other fields with Nuance.
Image source: Getty Images.
Valuation and verdict
From a valuation standpoint, GitLab is the much cheaper stock, trading at a price-to-sales (P/S) multiple of 9.9 times 2025 analyst estimates versus over 23.5 times for SoundHound. It is also worth remembering that GitLab's gross margins are much higher than SoundHound's.
Given GitLab's much cheaper valuation, vastly superior gross margins, strong revenue growth, and more established business model, I prefer it to SoundHound for the rest of 2025. SoundHound has a huge opportunity in front of it, but it will likely face a lot of competition trying to reach its goal of becoming the leader in AI voice commerce technology.
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Geoffrey Seiler has positions in GitLab. The Motley Fool has positions in and recommends GitLab, Microsoft, and Salesforce. The Motley Fool 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.
