SoundHound AI (SOUN 13.10%) has been one of the hottest stocks on the market in the past year, rising a stunning 602% as of this writing on the back of the company’s phenomenal growth, as well as a small investment by artificial intelligence (AI) pioneer Nvidia in this small but fast-growing voice AI solutions provider.
SoundHound’s terrific rise has brought its market capitalization to $4.7 billion as of this writing. However, the company has been prone to wild swings in its stock price in the past year. As it turns out, SoundHound stock is down 35% as of this writing in 2025 even in the absence of any company-specific information that could have caused such a steep sell-off.
One reason why investors may be hitting the sell button and booking profits in SoundHound stock is because of its extremely expensive valuation. The stock is currently trading at 58 times sales. That’s richer than even Nvidia, a company that’s much bigger and has been growing at a faster pace than SoundHound.
The rich valuation explains why SoundHound’s 12-month median price target of $9 suggests that the stock could drop nearly 30% from current levels. So, investors looking to capitalize on the AI boom may consider looking as SoundHound’s valuation indicates that the stock may have gotten ahead of itself. This is where C3.ai (AI 4.49%) and DigitalOcean (DOCN 2.74%) come into play.
Both these tech companies have been growing at a steady pace and are trading at reasonable valuations, and it won’t be surprising to see them overtaking SoundHound’s market cap in the coming year. Let’s look at the reasons why.
1. C3.ai
C3.ai carries a 12-month consensus price target of $40, which would be a 30% jump from current levels. Assuming C3.ai hits that mark in the coming year, its market cap could jump to almost $5.2 billion from the current level of $3.99 billion. And if SoundHound AI stock drops as much as consensus estimates are projecting, there is a good chance that C3.ai will become a more valuable company in the space of a year.
The good part is that C3.ai’s recent results demonstrate that it is indeed capable of delivering the upside that Wall Street is expecting from the company in the next year. The company’s revenue in the second quarter of fiscal 2025 (which ended on Oct. 31, 2024) increased 29% year over year to $94.3 million. That was a solid improvement over the 21% year-over-year revenue growth that C3.ai reported in the first quarter of the fiscal year.
C3.ai also increased its full-year revenue guidance to a midpoint of $388 million from the previous estimate of $382.5 million. The updated guidance would translate into a 25% improvement over fiscal 2024 levels when the company’s top line increased at a relatively slower pace of 16%. So, C3.ai’s growth has accelerated nicely in the ongoing fiscal year, and that trend seems here to stay considering the huge addressable market opportunity that the company is sitting on.
Mordor Intelligence estimates that the cloud AI services market could generate $89 billion in revenue this year. It is expected to clock a compound annual growth rate of 32% through 2030, generating $363 billion in revenue at the end of the forecast period. C3.ai has set its sights on this opportunity through a wide portfolio of more than 100 enterprise AI applications that can be deployed in multiple industries ranging from oil and gas to manufacturing to defense and intelligence to retail to government applications.
More importantly, it is offering these services through popular cloud computing platforms such as Microsoft Azure, Amazon Web Services, and Google Cloud. These channel partners are helping C3.ai drive strong growth in the number of agreements that it is signing with customers. In the second quarter of fiscal 2025, C3.ai closed 62% of its 58 agreements through the partner network. Google Cloud alone accounted for 20 of those agreements, a jump of 180% from the prior year.
This solid sales momentum through the partner network is here to stay as C3.ai has been tightening its relationship with the likes of Microsoft, which should allow it to reach a wider customer base and tap the massive opportunity present in the cloud AI market.
Finally, C3.ai is trading at a much more affordable sales multiple of 11 than SoundHound AI. Moreover, C3.ai’s improving growth profile means that it can justify its valuation, suggesting that the stock can indeed head higher in the coming year and overtake SoundHound’s market cap.
2. DigitalOcean
DigitalOcean is another company that’s on track to capitalize on the growing adoption of cloud-based AI services. The company provides an on-demand cloud infrastructure platform that customers can rent to build, deploy, and scale applications. DigitalOcean is now offering cloud infrastructure services powered by graphics processing units (GPUs) from Nvidia to customers so that they can train AI models, generate images, and render videos in the cloud without having to incur any hardware costs.
These moves could pave the way for stronger growth at DigitalOcean as its AI-focused offerings could encourage customers to spend more money. The good part is that DigitalOcean is already winning a bigger share of its customers’ wallets. The company’s average revenue per user (ARPU) increased 11% year over year in the third quarter of 2024 to $102.51.
The increase in the ARPU explains why DigitalOcean’s earnings increased at a faster pace of 18% year over year to $0.52 per share as compared to the 12% jump in its revenue. The company’s 2024 guidance of $776 million points toward a 12% increase in its top line from 2023. Analysts are expecting an acceleration in DigitalOcean’s growth in 2025 and 2026.
DOCN Revenue Estimates for Current Fiscal Year data by YCharts
However, don’t be surprised to see the company delivering stronger growth in both 2025 and 2026. It is worth noting that DigitalOcean’s 2024 revenue guidance has increased from its original forecast of $765 million issued in February last year. With the addition of AI-specific offerings into its portfolio, DigitalOcean may be able to capture a bigger share of its addressable market which it expects to hit $213 billion in 2027 and clock stronger-than-expected growth.
As such, buying DigitalOcean stock right now looks like a good idea as it is trading at just 4.4 times sales and 18 times forward earnings. Moreover, analysts are expecting the stock to hit a median price target of $40 in the next year, which would be a 19% jump from current levels. We have already seen why DigitalOcean is capable of achieving that target in the coming year or even beating it.
If that’s indeed the case and DigitalOcean jumps 19% in the next year, its market cap could jump to $3.7 billion, which would be enough to help it overtake SoundHound if the latter’s stock price drops as much as analysts are anticipating.
