SoundHound AI (NASDAQ: SOUN) inventory has witnessed a roller-coaster trip on the inventory market previously yr. It rose remarkably after it emerged that Nvidia had a small stake within the firm, earlier than witnessing intervals of volatility for a lot of 2024 after which closing the yr on a terrific notice.
Nevertheless, the brand new yr has not been type to SoundHound buyers. Shares of the corporate that is recognized for offering voice synthetic intelligence (AI) options to enterprise clients 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 the explanation why this inventory has been hammered to date this yr.
Although there’s a good likelihood that SoundHound could possibly continue to grow at a terrific tempo in the long term because of the large addressable alternative it is sitting on, the truth that it is buying and selling at an costly 41 occasions gross sales might proceed to weigh on the inventory’s efficiency within the close to time period. As such, it will not be shocking to see SoundHound inventory dropping within the coming yr, which might ship its market cap under the present stage of $4 billion.
Nevertheless, there’s one other firm that is buying and selling at a way more enticing stage in comparison with SoundHound AI, which has been delivering spectacular progress on the similar time. Let’s take a better take a look at that firm and test why it has the potential to overhaul SoundHound’s market cap within the subsequent yr.
Wholesome demand for cloud-based AI companies provides DigitalOcean a lift
DigitalOcean‘s (DOCN -0.57%) market cap of $3.7 billion signifies 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 enticing valuation, are why it might do higher than SoundHound within the coming yr.
Extra particularly, DigitalOcean is buying and selling at simply 5 occasions gross sales and 22 occasions ahead 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 a much bigger share of consumers’ 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 progress final quarter could be attributed to DigitalOcean’s investments in graphics processing models (GPUs) to fulfill the strong demand for cloud-based AI companies.
The corporate provides clients entry to highly effective GPUs comparable to Nvidia’s H100 by way of its GPU Droplets service. This enables shoppers to lease its infrastructure on demand in order that they will run massive language fashions (LLMs), and construct, scale, and deploy generative AI purposes. DigitalOcean launched this service in October 2024, and the demand has been so robust that it “rapidly ran out of capability after launching.”
The wholesome demand for DigitalOcean’s cloud-based AI instruments is one purpose why its common income per consumer (ARPU) elevated 14% yr over yr in This fall, an acceleration over the 6% progress seen in the identical quarter final yr. This metric might hold bettering, as DigitalOcean is bolstering its platform by including new AI-focused companies.
In January this yr, the corporate launched the DigitalOcean GenAI Platform, an answer that can assist clients construct, deploy, and scale AI brokers rapidly with the assistance of well-liked LLMs comparable to Anthropic and Mistral AI. This platform is at present within the public beta testing section. DigitalOcean factors out that greater than 1,000 AI brokers have already been created utilizing this platform within the testing section, with round 90% created by current clients.
This agentic AI platform might give DigitalOcean one more alternative to win a much bigger share of its clients’ wallets by way of cross-selling. It might assist entice new clients as properly, since the marketplace for AI brokers is predicted to clock an annual progress charge of 46% by way of the top of the last decade, in keeping with Grand View Analysis.
Why DigitalOcean can overtake SoundHound’s market cap
Traders ought to notice 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. Nevertheless, it might do higher than that due to the quickly rising demand for the cloud-based AI companies that it’s now providing. That would 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 step with the U.S. know-how sector’s common price-to-sales ratio, and clocks $880 million in income, its market cap might hit $6.6 billion. That may be sufficient to overhaul SoundHound AI’s market cap, contemplating that the latter could discover extra upside troublesome to return by on account of its costly valuation.
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 coverage.
