SoundHound AI (SOUN 2.24%) stock has witnessed a roller-coaster ride on the stock market in the past year. It rose remarkably after it emerged that Nvidia had a small stake in the company, before witnessing periods of volatility for much of 2024 and then closing the year on a terrific note.
However, the new year has not been kind to SoundHound investors. Shares of the company that's known for providing voice artificial intelligence (AI) solutions to enterprise customers have dropped 51% in 2025 as of this writing. Nvidia's sale of its SoundHound investment, along with the stock's expensive valuation, are the reasons why this stock has been hammered so far this year.
NASDAQ: SOUN
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Though there is a good chance that SoundHound may be able to keep growing at a terrific pace in the long run thanks to the huge addressable opportunity it's sitting on, the fact that it's trading at an expensive 41 times sales could continue to weigh on the stock's performance in the near term. As such, it won't be surprising to see SoundHound stock dropping in the coming year, which could send its market cap below the current level of $4 billion.
However, there is another company that's trading at a much more attractive level compared to SoundHound AI, which has been delivering impressive growth at the same time. Let's take a closer look at that company and check why it has the potential to overtake SoundHound's market cap in the next year.
Healthy demand for cloud-based AI services gives DigitalOcean a boost
DigitalOcean's (DOCN +1.25%) market cap of $3.7 billion means that it is close behind SoundHound as far as their market caps are concerned. The fast-growing demand for the company's on-demand cloud computing infrastructure that's mainly used by developers, start-ups, and small businesses, along with its attractive valuation, are why it could do better than SoundHound in the coming year.
More specifically, DigitalOcean is trading at just 5 times sales and 22 times forward earnings right now. Buying this stock at this valuation looks like a no-brainer, as the AI-focused cloud computing solutions that the company has started offering are helping it win a bigger share of customers' wallets. This is evident from the company's latest quarterly results.
NYSE: DOCN
Key Data Points
DigitalOcean's revenue in the fourth quarter of 2024 increased 13% year over year to $205 million, while earnings jumped 11% to $0.49 per share. The slower pace of earnings growth last quarter can be attributed to DigitalOcean's investments in graphics processing units (GPUs) to meet the robust demand for cloud-based AI services.
The company gives customers access to powerful GPUs such as Nvidia's H100 through its GPU Droplets service. This allows clients to rent its infrastructure on demand so that they can run large language models (LLMs), and build, scale, and deploy generative AI applications. DigitalOcean launched this service in October 2024, and the demand has been so strong that it "quickly ran out of capacity after launching."
The healthy demand for DigitalOcean's cloud-based AI tools is one reason why its average revenue per user (ARPU) increased 14% year over year in Q4, an acceleration over the 6% growth seen in the same quarter last year. This metric could keep improving, as DigitalOcean is bolstering its platform by adding new AI-focused services.
In January this year, the company launched the DigitalOcean GenAI Platform, a solution that will help customers build, deploy, and scale AI agents quickly with the help of popular LLMs such as Anthropic and Mistral AI. This platform is currently in the public beta testing phase. DigitalOcean points out that more than 1,000 AI agents have already been created using this platform in the testing phase, with around 90% created by existing customers.
This agentic AI platform could give DigitalOcean yet another opportunity to win a bigger share of its customers' wallets through cross-selling. It could help attract new customers as well, since the market for AI agents is expected to clock an annual growth rate of 46% through the end of the decade, according to Grand View Research.
Why DigitalOcean can overtake SoundHound's market cap
Investors should note that DigitalOcean has guided for $880 million in revenue in 2025 at the midpoint of its guidance range, an increase of 13% from last year. However, it could do better than that because of the rapidly growing demand for the cloud-based AI services that it is now offering. That could lead the market to reward it with a higher sales multiple.
Assuming DigitalOcean trades at 7.5 times sales after a year, in line with the U.S. technology sector's average price-to-sales ratio, and clocks $880 million in revenue, its market cap could hit $6.6 billion. That would be enough to overtake SoundHound AI's market cap, considering that the latter may find more upside difficult to come by due to its expensive valuation.
