Comparing SoundHound AI and Cerence AI
Exploring the Voice AI Stocks: SoundHound AI vs. Cerence AI
Overview of SoundHound AI
SoundHound AI (NASDAQ: SOUN) is an emerging player in the voice-activated technology sector, which has been gaining massive traction since late 2022. Despite not being widely recognized, the company’s stock has climbed an impressive 429% since the start of 2023. Currently, it holds a market capitalization of $4 billion, categorizing it as a small-cap stock with significant potential for growth.
SoundHound specializes in developing voice technology, catering to industries like restaurant services and automotive applications. Its offerings enable brands to create conversational voice assistants that utilize advanced features such as automatic speech recognition and natural language understanding.
Revenue Generation Models for SoundHound
SoundHound generates revenue through various channels:
- Royalties: The company earns money based on the usage or volume of products developed with its technology.
- Subscription Services: It offers subscription plans for customer service and food ordering applications.
- Monetization Layer: SoundHound takes a share of the revenue from additional services integrated into its voice-enabled products.
Cerence AI’s Position
Cerence (NASDAQ: CRNC) is another notable player in the voice AI market, primarily focused on the automotive and transportation sector. Unlike SoundHound’s broad approach, Cerence specializes in virtual assistants that enhance driver engagement through voice commands. It boasts partnerships with virtually all major automobile manufacturers, including BMW, Ford, and General Motors, with its technology incorporated in over 500 million vehicles.
Key Differences Between SoundHound and Cerence
The main distinction lies in their market focus. SoundHound caters to a variety of industries, while Cerence is laser-focused on automotive applications.
Recent financial data highlights that SoundHound experienced a remarkable 85% revenue growth, reaching $84.5 million in 2024. However, it is essential to note that this figure may include contributions from several acquisitions, making it unclear how much growth was solely organic.
Profitability and Financial Performance
In contrast to SoundHound’s growth trajectory, Cerence has shown stable, albeit slower growth. In fiscal 2024, Cerence’s revenue increased by 12.5% to $331.5 million. However, anticipated losses—including a significant contract loss with Toyota—could lead to a projected revenue drop in the following year to about $236 million to $247 million.
On a profitability basis, Cerence reported an adjusted net income of $56.1 million in the same fiscal period, distinguishing itself as a profitable entity compared to SoundHound, which reported a $61.9 million EBITDA loss.
Valuation and Market Dynamics
The valuation profiles of these two companies are also contrasting. SoundHound, with its strong revenue growth, currently has a price-to-sales ratio of 37, considered reasonable given its rapid expansion.
On the other hand, Cerence’s valuation reflects a trailing price-to-earnings ratio of less than 8. However, analysts expect declines in earnings, leading to a forward P/E ratio close to 60. Recently, Cerence’s stock saw a notable spike following a partnership announcement with Nvidia, marking a significant development in its growth trajectory.
Investment Insights
Investors looking at these two options might find SoundHound appealing due to its rapid growth potential. However, the company faces challenges in achieving profitability and competes with large players like Amazon and Apple.
Cerence, established and profitable, may present a less risky investment opportunity, with its growth projected to recover, especially with backing from strategic partnerships like that with Nvidia.
While growth-chasing investors may prefer SoundHound, those looking for a stable investment might lean towards Cerence as it continues to demonstrate its ability to generate profit.
