Pushing for a profit

The first one is C3.ai (NYSE:AI). It’s a software company that provides AI and machine learning solutions for enterprise businesses, with a particular focus on large-scale, industrial, and government sectors.

Over the past year, the stock is down 14%. Part of this is because the business remains unprofitable, with a high cash burn rate of tens of millions of dollars per quarter. Although this remains a risk going forward, I’m not overly concerned. The business is growing, as shown by the 29% revenue increase in Q2 results versus the same period last year.

Subscription growth (a key metric for the company) rose by 22% versus last year, indicating to me that it’s only a matter of time before the firm flips to making a profit. Recently, it has been shifting from long-term contracts to a usage-based model (consumption-based pricing), aiming to drive broader adoption. I think this is a good move that bodes well for the future.

Let’s not forget that the AI software market is experiencing rapid growth. The business is well-positioned as a first mover in enterprise AI, especially with its focus on regulated and high-complexity industries. Yet due to the losses, I think many investors have overlooked it and I think this has made it undervalued.

The voice of success

Another option that I think is worth considering is SoundHound AI (NASDAQ:SOUN). It specialises in voice AI and natural language understanding, offering conversational AI solutions for everyone from car companies through to smart devices.

It already has some high-level partnerships, such as with Mastercard and Hyundai, but is currently trading around $11. Even though it’s up 164% over the past year, it’s down 44% in 2025. The sharp drop in Q1 came after Nvidia revealed it had fully exited its investment in the business.

Given it was trading above $20 at the start of the year, I think it’s good value at current levels. The exit from Nvidia doesn’t mean the business has peaked, as it has continued to deliver strong financial results since then.

One risk is the high competition, such as with Siri and Alexa from other large tech companies. Yet despite this, there’s growing demand in this niche part of AI. SoundHound is the go-to specialist in this area, which leads me to think that it could stabilise and eventually rally back to the January highs.

I like both AI stocks and think investors can consider them when it comes to trying to find good value in a space where some shares are overhyped.

The post 2 AI growth shares that I think are still undervalued appeared first on The Motley Fool UK.

Since 7 February, the share price has gone from $1.71 to $8.24, which translates into a whopping 381% rise.

Is this an artificial intelligence (AI) stock to consider for my own portfolio? Let’s dig in.

Riding Nvidia’s coattails

For those unfamiliar, SoundHound’s tech enables brands to build conversational AI voice assistants.

On 14 February, investors noticed in a regulatory filing that chipmaker Nvidia had a stake in this tiny firm. Like clockwork, they piled in, believing the small-cap stock with AI handily incorporated into its name could be the next big thing.

The share price went up 66% in a single day!

However, it was quickly revealed that Nvidia had held this position for seven years, without actually adding to it. What’s more, these 1.73m shares were worth roughly $11m at the time.

Admittedly, they’re worth a bit more now, but this is still a drop in the ocean for an AI behemoth like Nvidia.

Helping feed customers

SoundHound is currently focused on in-vehicle and restaurant applications. For example, it has a partnership with fast food chain White Castle that allows customers to place orders without interacting with staff.

The firm also has a deal with Toast, the cloud-based restaurant management software company. Its SoundHound for Restaurants voice assistant can take multiple orders at once, as well as answering business inquiries, before integrating them with the Toast system.

Therefore, busy staff no longer have to choose between answering a call or serving customers in front of them.

More positive news

Big news out yesterday (18 March) was that SoundHound’s in-vehicle voice assistant would use a large language model while running on the Nvidia DRIVE platform.

Using edge computing, this will provide real-time generative AI capabilities even when there is no connectivity.

One example it gives is a driver saying: “I see a flashing light that looks like a car battery and I’m not sure what that means?”

The AI can deliver information directly from the car manual without the need to start flicking through that big chunky document.

The next Nvidia?

So far, so cool, I’d say. But what about the all-important numbers?

Well, the firm’s revenue grew 47% year on year to $46m, while it recorded an operating loss of $68m. In 2024, revenue is expected to accelerate 51% to around $70m, before exceeding $100m in 2025.

Unfortunately though, this anticipated high growth is already baked into the stock’s valuation. It is trading on an eye-watering forward price-to-sales (P/S) multiple of 39.8.

If next year’s revenue does reach $100m, the P/S multiple would drop to around 27. But even that is sky-high.

Now, a positive adjusted EBITDA of $2.8m is forecast for 2025, which is encouraging. And the stock could always keep going up in the near term. Meanwhile, a $2.5bn market cap suggests there is plenty of scope to grow over the long run.

As things stand though, this appears to be an overvalued growth stock caught up in the AI hype cycle.

Therefore, I don’t see evidence that it’s the next Nvidia, and I’d be very careful buying the shares at today’s valuation.

The post Could SoundHound AI be the next Nvidia-like growth stock at $8? appeared first on The Motley Fool UK.