SoundHound AI (SOUN -0.91%), a developer of artificial intelligence (AI)-powered speech and audio recognition tools, has been a polarizing investment ever since its public debut three years ago. The bulls were initially impressed by its rapid growth, expanding customer base, and the disruptive potential of its tools, which could be customized for restaurants, vehicles, consumer electronics, and other markets. Nvidia's minor investment in the company raised even more green flags.
However, a lot of SoundHound's growth was driven by its acquisitions rather than its organic improvements -- and it remained deeply unprofitable. It also faces stiff competition from similar voice recognition platforms, and many investors fled after Nvidia sold its entire stake earlier this year.
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From 2024 to 2027, analysts expect SoundHound's revenue to increase at a compound annual growth rate (CAGR) of 48%. They also expect its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to turn positive by the final year.
That's a promising growth trajectory, but it's still richly valued at 20 times this year's sales, so any bad news could easily sink its stock. Instead of investing in SoundHound AI, it might be smarter to invest in two other AI-oriented stocks that are on firmer ground: Arista Networks (ANET -2.17%) and Micron (MU -0.98%).
1. Arista Networks
Arista Networks is a top networking hardware and software company. But unlike its larger competitor, Cisco, which locks in its customers with proprietary hardware and software, Arista uses off-the-shelf chips and open-source software that are compatible with a broad range of hardware. It also sells low-latency switches, optimized for hyperscale data center and cloud networks, and its CloudVision platform enables those clients to easily monitor their own cloud deployments.
Arista's flexible, modular, and scalable strategy made it a top choice for cloud giants like Meta Platforms and Microsoft. So, while Cisco might be a better one-stop shop for enterprise and campus customers, Arista is a more focused play on the booming cloud and AI infrastructure markets.
From 2019 to 2024, Arista's revenue rose at a CAGR of 24%, while its adjusted net income increased at a CAGR of 30%. From 2024 to 2027, analysts expect its revenue and earnings per share (EPS) to grow at a CAGR of 19% and 15%, respectively.
That growth should be driven by the soaring need for cloud and AI infrastructure upgrades, its gradual expansion into the enterprise and campus markets to challenge Cisco, and the rising adoption of its integrated security services. Arista's stock isn't cheap at 39 times this year's earnings, but it could still have plenty of room to grow.
2. Micron
Micron is one of the world's largest producers of DRAM (dynamic random-access memory) and NAND memory chips. It controls smaller slices of both markets than South Korea's Samsung and SK Hynix, but Micron manufactures slightly denser DRAM chips with its 1-beta process. That technological edge makes it a top choice for performance-oriented cloud and AI companies.
Micron is a cyclical company that follows the memory market's boom and bust cycles. Its last bust occurred in 2023, when the PC market lapped its pandemic-driven acceleration, the 5G smartphone upgrade cycle cooled, and more data centers prioritized their purchases of Nvidia's AI-oriented graphics processing units (GPUs) over new memory chips.
But from fiscal 2024 (which ended last August) to fiscal 2027, analysts expect Micron's revenue and EPS to grow at a CAGR of 23% and 148%, respectively. The company's growth is accelerating again as the PC and smartphone markets stabilize and more data center customers install solid-state drives (SSDs) and high-bandwidth memory (HBM) chips to support the latest cloud and AI applications.
That's an impressive growth trajectory for a stock that trades at just 13 times next year's earnings. Micron is likely trading at that lower valuation because it's a cyclical stock. However, it still has plenty of upside potential in this boom cycle as the cloud and AI markets generate fresh tailwinds for its business.
