For more than two years now, since ChatGPT introduced us to a fuller range of its potentialities, AI has been a major driver of the stock market. The mega-cap tech giants have used this development to their advantage and have spearheaded the market’s surge.
This overall frame remains intact, but the AI picture is broadening. As the technology expands into additional fields, more AI-related companies and stocks are getting notice—and for the right reasons. They are applying AI in new ways and opening new opportunities for investors.
Cantor analyst Thomas Blakey, covering the AI segment, paints an upbeat picture for interested investors, writing, “In addition to AI traction picking up steam, particularly in the US, as well as increases in capex spend by major hyperscalers, top news included continued advancements in AI applications from OpenAI, Microsoft/LinkedIn, Amazon’s Alexa, and even the US government with DOGE’s GSAi bot. Momentum is not likely to wane…”
Blakey and his colleagues are following this line, but with a twist—they are pointing out some of the smaller AI stocks for closer perusal. In particular, the Cantor team is looking at SoundHound and BigBear.ai, and the analysts are not shy about choosing which one is the superior AI stock to buy. Here are the details on both, taken from the TipRanks database and presented along with comments from the Cantor stock analysts.
SoundHound AI, Inc. (SOUN)
We’ll start with a look at SoundHound. This Silicon Valley tech/AI firm was founded in 2005 and specializes in combining AI and voice recognition technologies. SoundHound describes this as conversational intelligence, and its AI solutions allow businesses to develop more and more realistic AI-generated conversational experiences for their own customers. In short, SoundHound’s chief product is conversational AI that’s just more human.
SoundHound uses a proprietary technology to deliver best-in-class voice AI solutions in a wide range of fields, including TV, IoT, automotive, and customer service, and in multiple languages. SoundHound’s products include Chat AI, Smart Answering, Smart Ordering, and Dynamic Interaction, as well as other smart conversational AIs capable of maintaining real-time interactions. The system provides voices to millions of products and services and can process billions of interactions every year. Through all of this, SoundHound has developed a reputation for consistently high quality in its generative AI voice systems.
The company’s latest GenAI iteration, which it dubs agentic AI, is designed to take conversational AI “to the next level.” The system creates voice AI agents to allow companies to achieve goal-oriented outcomes using digital rather than manual labor. Agentic AI solutions have proven capable of driving stronger ROI in phone systems, drive-throughs, kiosks, and other retail situations.
Turning to the company’s financial results, we find that SoundHound hit record-level revenue in its last reported quarter, 3Q24. That figure came to $25.09 million, up 89% year-over-year and beating the forecast by $2.06 million. At the bottom line, SoundHound realized an adj. net loss of 4 cents per share—but that figure was 3 cents per share better than anticipated. The company will report Q4 earnings tomorrow (Feb 27) with the Street expecting revenue of $33.7 million and adj. EPS of -$0.08.
Cantor’s Thomas Blakey covers this stock, and when we check in with him again, we find that he likes SoundHound’s products, their potential, and the company’s prospects for further growth and expansion, but points out one glaring issue. Blakey says, “We are impressed with SoundHound AI’s technology and all demos we’ve seen are impressive. From in-auto ordering to QSR kiosk ordering from cloud-based solutions to edge based (e.g., Nvidia (former shareholder) powered edge devices) solutions, the company’s Voice AI technology works better than any we have tested. The company also has multiple pathways to growth, from its Subscription-, Fortune-500-based Amelia acquisition, focused on voice-enabled workflow automation to the large, dynamic opportunities around contextual search-related commerce and advertising revenue sharing. That said, at 20x EV/C26 revenue we feel these scenarios are embedded in shares at current levels.”
The baked-in value would seem to be the most important factor for the Cantor analyst; he puts a Neutral rating on the stock, with a price target of $10 that suggests a 12% upside potential for the coming year. (To watch Blakey’s track record, click here.)
There are 4 recent analyst reviews on file for SoundHound, and they split into 2 Buys and Holds, each, giving the stock a Moderate Buy consensus rating. The shares are currently trading for $8.9, and the average price target of $16.5 is an optimistic one, implying the stock has a one-year upside potential of 85%. (See SOUN stock forecast.)
BigBear.ai Holdings, Inc. (BBAI)
Next up is an advanced AI/machine learning company, BigBear.ai. This company, which went public through a SPAC transaction in 2021, specializes in IT consulting and outsourcing and does a lot of US government work. The company is based in Columbia, Maryland, in the corridor between Washington and Baltimore, putting it in easy reach of the capital.
In recent years, and especially since the genAI explosion began in late 2022, BigBear.ai has specialized in using AI and machine learning to create automated decision-making applications. The company provides its decision intelligence solutions in such fields as national security and defense, supply chains and logistics, healthcare, and enterprise operations. BigBear.ai’s solutions are applicable to autonomous systems, allowing human operators and overseers to maintain a more hands-off approach.
Recently, this company won two important contracts with the Department of Defense. At the end of January, BigBear.ai announced it had received the Navy’s prime IDIQ contract for the SeaPort Next Generation program – that is, a contract for Indefinite Delivery/Indefinite Quantity. The contract will put BigBear in a position to provide a range of mission-critical support and innovative technologies to the Navy as well as other Federal agencies.
Earlier this month, BigBear.ai won a Defense Department contract with the Chief Digital and Artificial Intelligence Office (CDAO), to advance the company’s Virtual Anticipation Network (VANE) prototype. Under the contract, BigBear.ai will provide custom AI models to assess news media from potential foreign adversaries, an important capability in the intelligence sector.
Turning to the financials, BigBear.ai generated revenue of $41.5 million in 3Q24, the last period reported. This was up 22% year-over-year, but came in $3.53 million below expectations. The company ran a net loss at the bottom line, with an EPS of ($0.05); despite the loss, the earnings figure was 2 cents per share better than the forecast.
In his coverage of this AI stock for Cantor, analyst Yi Fu Lee points out the company’s strength in genAI technology in practical applications. He notes also that the company has solid prospects for continued growth next year, and writes, “OpenAI’s introduction of ChatGPT in November 2022 set the world on fire with Generative AI (Gen AI) adoption, and in a sense this has indirectly placed greater emphasis on advanced AI/ML platforms such as BigBear.ai. We believe BigBear.ai AI/ML powered intelligence software bundled with a special force team of experts holding high active U.S. security clearance is a significant barrier to entry for startups.”
“BigBear.ai empowers analysts to optimize the best case scenario to create order/predictive outcomes from incomplete raw data across specialized industry verticals in global supply chains and logistics, cybersecurity, and autonomous systems,” Lee went on to add. “We recommend investors interested in a small-cap AI/ML name that has recently undergone a complete turnaround in optimizing the business to gear up for growth next year take a deep look at BigBear.ai.”
These comments support the analyst’s Overweight (Buy) rating on the shares, while the price target, of $8, suggests that BBAI will gain 43% on the one-year horizon. (To watch Lee’s track record, click here.)
There is only other recent BBAI review and it is also positive, making the consensus view here a Moderate Buy. BBAI shares are trading for $5.60, and their average target of $7.50 implies a potential gain of 34% in the next 12 months. (See BBAI stock forecast.)
It’s clear, then, that the Cantor analysts see BigBear.ai as the way to go for investors looking to profit from the smaller AI firms.
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.