Companies like Nvidia, Microsoft, and Amazon have become synonymous with artificial intelligence (AI). These trillion-dollar giants are among the highest-quality companies investors can buy, but smaller names can represent promising AI opportunities as well.
C3.ai (NYSE: AI) was one of the world’s first enterprise AI companies when it was founded in 2009, and SoundHound AI (NASDAQ: SOUN) has become a leader in conversational AI. The latter has even won the endorsement of Nvidia, which purchased a stake in the company late last year.
C3.ai and SoundHound have market capitalizations of $3.1 billion and $1.8 billion, respectively, but they could soar in value as the AI revolution unfolds.
1. C3.ai: A unique enterprise AI company
Oracle chairman Larry Ellison recently said the cost to build a true, cutting-edge frontier AI model from scratch could exceed $100 billion. That’s why many businesses choose to use completed models from third parties like OpenAI or Anthropic when creating AI software. However, with C3.ai, they can skip that step entirely (depending on their needs).
C3.ai offers a portfolio of over 40 finished AI applications, which can be customized to suit almost any business in as little as three months from the date of the first meeting. In fact, the company has customers in 19 different industries, including financial services, manufacturing, and oil and gas, to name a few.
One of the world’s largest chemical manufacturers, Dow, uses the C3.ai Reliability platform for predictive maintenance. It has achieved a 20% reduction in equipment downtime, which is such a strong result that it’s rolling the software out to more of its assets.
C3.ai sells its AI applications directly to customers, but it also sells them jointly with the cloud divisions of tech giants like Microsoft, Amazon, and Alphabet. It’s a win-win for all parties — the cloud providers can offer their customers more choice when it comes to AI, and C3.ai gains access to a large pool of businesses to which it can potentially sell its software. During its fiscal 2025 first quarter (ended July 31), C3.ai’s partner network accounted for 72% of its deal flow, making it a valuable sales channel.
The company generated a record $87.2 million in revenue during the quarter, up 21% from the year-ago period. That marked the sixth consecutive quarter of accelerating revenue growth as the company reaps the benefits of its shift to consumption-based pricing that was put into motion two years ago. Based on management’s guidance, revenue growth could accelerate yet again in the fiscal second quarter.
C3.ai stock is trading more than 85% below its all-time high, which was set during the tech frenzy in 2020. It was unquestionably overvalued back then when its price-to-sales (P/S) ratio topped 80. It has now come down to a more reasonable 9.1, below its three-year average of 10.5. That’s still a premium valuation, but you can arguably justify it with the company’s accelerating revenue growth.
2. SoundHound AI: A leader in conversational AI
Like C3.ai, SoundHound AI has also developed a portfolio of AI tools for businesses. It focuses on conversational AI applications that are capable of voice-based interactions with their users, making them highly useful in places like restaurants or inside your car.
SoundHound allows restaurants to accept customer orders using AI, whether it’s in-store, over the phone, or in the drive thru, with no human input required. Plus, its Employee Assist software can converse with workers about store policies or even provide instructions on how to make certain menu items.
Several popular restaurant chains use SoundHound’s products, including Chipotle Mexican Grill, Papa Johns, and Beef ‘O’ Brady’s. The latter just rolled out AI ordering across all of its corporate locations, and it’s also giving franchisees the option to use it.
SoundHound’s Chat AI voice assistant is popular in the automotive industry. It’s already live across six brands under the Stellantis umbrella, and it’s capable of providing drivers with information on a range of topics from sports scores to the status of an upcoming flight. SoundHound uses Nvidia’s Drive platform to power its voice interface, which allows Chat AI to function even when there is no internet or cellular connectivity. So, not only did Nvidia buy a small stake in SoundHound, but the two companies are also closely working together.
SoundHound generated $45.9 million in revenue in 2023, and management’s guidance calls for the top line to grow 74% to $80 million this year. The company’s outlook also anticipates growth accelerating in 2025 as revenue hits $150 million.
Part of the strong forecast is attributable to SoundHound’s recent acquisition of Amelia, an AI company that helps businesses create AI agents to serve their customers and employees. Amelia is expected to contribute $45 million to SoundHound’s revenue next year, which is included in the above forecast. The acquisition will expand SoundHound’s reach into new industries like healthcare, financial services, and insurance.
SoundHound stock trades at a P/S ratio of 23.9 as of this writing, nearly triple the valuation of C3.ai stock. While that’s expensive, its P/S ratio shrinks to 11.5 based on management’s 2025 revenue outlook. That said, investors will need to adopt a long-term mindset as SoundHound rides the tailwinds from the ongoing advancement of AI technology.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Chipotle Mexican Grill, Microsoft, Nvidia, and Oracle. The Motley Fool recommends C3.ai and Stellantis and recommends the following options: long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short September 2024 $52 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
2 Small-Cap Artificial Intelligence (AI) Stocks to Buy Right Now was originally published by The Motley Fool
