Artificial intelligence (AI) stocks performed extraordinarily well this year -- and I'm not just talking about the AI chip king Nvidia. Since many believe AI can radically disrupt almost every part of daily life, investors are hunting for the best stocks in nearly every industry from cybersecurity to business analytics to consumer goods.

Two stocks that garnered interest are Palo Alto Networks (PANW -1.23%) and SoundHound AI (SOUN -1.16%). Palo Alto has performed well this year, with its stock up over 30%. Meanwhile, SoundHound AI, which has a much smaller market cap than Palo Alto, has been a rocket ship with its stock up 630%. Wall Street analysts see significant downside in one of these stocks but recommend buying the other. Let's take a look.

SoundHound AI: Implied downside of 46%

SoundHound helps companies create or add artificial intelligence voice capabilities to their products, services, and apps. The company's solutions include AI voice assistants, automatic speech recognition, real-time transcription services, and restaurant phone answering and ordering. Automotive companies like Mercedes-Benz and Honda use SoundHound for voice solutions in the vehicles they sell to consumers.

Stocks that have been on a run like SoundHound AI will be vulnerable to analysts and maybe even short-sellers calling for a pullback. The company is not yet profitable and has a $5.7 billion market cap. Recently, SoundHound closed its acquisition of Amelia, a leader among conversational AI for large companies, which management believes will help SoundHound expand into new sectors such as finance and healthcare.

According to Tipranks, five analysts have issued research reports on the company over the past three months. Three rate the company a buy and two a hold. However, the average price target among these analysts is $8.10, implying roughly 44% downside for the stock, as of Dec. 9. The high estimate for the stock is $10, while the low estimate is $6.

Ladenburg Thalmann Financial Services recently downgraded SoundHound from a buy to a neutral rating and maintained its $7 price target. The firm noted that SoundHound reported "solid" results in its recent quarter, but thinks the acquisition of Amelia and massive gains this year will lead to some near-term pressure. The company trades at a whopping 68 forward price-to-sales ratio, so while the company looks solid and has immense potential I think you'll be able to buy shares at cheaper levels sooner rather than later.

Palo Alto Networks: Implied upside of 4.5%

Palo Alto Networks leverages machine learning and AI to protect businesses from various advanced cyber threats. The company's network security platform offers a range of subscriptions including advanced threat protection, advanced URL filtering, software-as-a-service (SaaS) security, protection on networks used on different devices, and much more.

The majority of the business world is now digital, and the largest corporations say that some of their biggest threats include cyber attacks, which can shut down systems and disrupt their customers. Cyber attacks also make customer data vulnerable. Palo Alto makes most of its revenue from subscriptions, which can vary from one to five years, providing a stream of sticky and recurring revenue. Subscription revenue over the last year increased 19% from the preceding 12 months.

According to TipRanks, 36 analysts issued research reports on Palo Alto over the last three months. Of this group, 31 analysts rate the company a buy, four a hold, and one a sell. The average 12-month price target implies 4.5% upside. Research analysts at Argus recently raised their price target for Palo Alto, citing solid results in the fourth quarter and the company's positioning in a fast-growing and important market.

The stock is certainly not cheap, trading at 63 times earnings. However, I agree with the analysts at Argus. Cybersecurity is an increasingly important part of the world and I suspect it will only become more important. This could lead to a massive market opportunity and potential moat for companies that can gain a foothold. Given these factors, I would be more inclined to pay a higher valuation for Palo Alto Networks.