SoundHound AI (NASDAQ: SOUN) inventory has witnessed a roller-coaster journey on the inventory market up to now yr. It rose remarkably after it emerged that Nvidia had a small stake within the firm, earlier than witnessing durations of volatility for a lot of 2024 after which closing the yr on a terrific word.
Nonetheless, the brand new yr has not been type to SoundHound traders. Shares of the corporate that is recognized for offering voice artificial intelligence (AI) options to enterprise prospects have dropped 51% in 2025 as of this writing. Nvidia’s sale of its SoundHound funding, together with the inventory’s costly valuation, are the reasons why this stock has been hammered to date this yr.
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Although there’s a good likelihood that SoundHound might be able to keep growing at a terrific pace in the long term because of the massive addressable alternative it is sitting on, the truth that it is buying and selling at an costly 41 occasions gross sales may proceed to weigh on the inventory’s efficiency within the close to time period. As such, it will not be stunning to see SoundHound inventory dropping within the coming yr, which may ship its market cap under the present degree of $4 billion.
Nonetheless, there may be one other firm that is buying and selling at a way more engaging degree in comparison with SoundHound AI, which has been delivering spectacular development on the identical time. Let’s take a better have a look at that firm and examine why it has the potential to overhaul SoundHound’s market cap within the subsequent yr.
Wholesome demand for cloud-based AI providers offers DigitalOcean a lift
DigitalOcean‘s (NYSE: DOCN) market cap of $3.7 billion implies that it’s shut behind SoundHound so far as their market caps are involved. The fast-growing demand for the corporate’s on-demand cloud computing infrastructure that is primarily utilized by builders, start-ups, and small companies, together with its engaging valuation, are why it may do higher than SoundHound within the coming yr.
Extra particularly, DigitalOcean is buying and selling at simply 5 occasions gross sales and 22 occasions forward earnings proper now. Shopping for this inventory at this valuation appears to be like like a no brainer, because the AI-focused cloud computing options that the corporate has began providing are serving to it win an even bigger share of shoppers’ wallets. That is evident from the corporate’s newest quarterly outcomes.
DigitalOcean’s income within the fourth quarter of 2024 elevated 13% yr over yr to $205 million, whereas earnings jumped 11% to $0.49 per share. The slower tempo of earnings development final quarter could be attributed to DigitalOcean’s investments in graphics processing items (GPUs) to satisfy the strong demand for cloud-based AI providers.
The corporate offers prospects entry to highly effective GPUs equivalent to Nvidia’s H100 via its GPU Droplets service. This enables shoppers to lease its infrastructure on demand in order that they will run large language models (LLMs), and construct, scale, and deploy generative AI functions. DigitalOcean launched this service in October 2024, and the demand has been so strong that it “shortly ran out of capability after launching.”
The wholesome demand for DigitalOcean’s cloud-based AI instruments is one cause why its common income per consumer (ARPU) elevated 14% yr over yr in This fall, an acceleration over the 6% development seen in the identical quarter final yr. This metric may maintain bettering, as DigitalOcean is bolstering its platform by including new AI-focused providers.
In January this yr, the corporate launched the DigitalOcean GenAI Platform, an answer that may assist prospects construct, deploy, and scale AI brokers shortly with the assistance of fashionable LLMs equivalent to Anthropic and Mistral AI. This platform is presently within the public beta testing part. DigitalOcean factors out that greater than 1,000 AI brokers have already been created utilizing this platform within the testing part, with round 90% created by present prospects.
This agentic AI platform may give DigitalOcean one more alternative to win an even bigger share of its prospects’ wallets via cross-selling. It may assist entice new prospects as effectively, since the marketplace for AI brokers is anticipated to clock an annual development price of 46% via the tip of the last decade, in response to Grand View Analysis.
Why DigitalOcean can overtake SoundHound’s market cap
Buyers ought to word that DigitalOcean has guided for $880 million in income in 2025 on the midpoint of its steerage vary, a rise of 13% from final yr. Nonetheless, it may do higher than that due to the quickly rising demand for the cloud-based AI providers that it’s now providing. That might lead the market to reward it with the next gross sales a number of.
Assuming DigitalOcean trades at 7.5 occasions gross sales after a yr, in keeping with the U.S. expertise sector’s common price-to-sales ratio, and clocks $880 million in income, its market cap may hit $6.6 billion. That may be sufficient to overhaul SoundHound AI’s market cap, contemplating that the latter might discover extra upside tough to come back by because of its costly valuation.
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Harsh Chauhan has no place in any of the shares talked about. The Motley Idiot has positions in and recommends DigitalOcean and Nvidia. The Motley Idiot has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the writer and don’t essentially replicate these of Nasdaq, Inc.
