AI has been dominating headlines and pushing the boundaries of computing capabilities. Since the debut of generative AI with ChatGPT in 2022, this groundbreaking technology has been revolutionizing the tech world and making waves across the broader economy. Its influence is evident in everything from computing to digital advertising to sound recording and production to management solutions – and that eclectic list is just the tip of the iceberg.
This sweeping change is unlocking numerous opportunities for growth and profits. The AI sector, already valued at over $620 billion this year according to Fortune Business Insights, is projected to soar to $2.74 trillion by 2032. This equates to a compound annual growth rate (CAGR) of more than 20% over the next 8 years.
For investors, this presents a compelling opportunity to invest in companies that stand to benefit from the AI revolution. Jean Boivin, head of the BlackRock Investment Institute, is among those who hold this view.
“We have high conviction that AI can keep driving returns in most scenarios,” Boivin stated. “We see its buildout and adoption creating opportunities across sectors. The AI theme has fueled U.S. stock gains and strong corporate earnings, leading us to overweight U.S. stocks overall.”
While the market’s tech giants have been getting plenty of AI-related attention, Blackrock has also been busy scooping up shares of lesser-known companies showing an AI bent. As their names imply, both SoundHound AI (NASDAQ:SOUN) and C3.ai (NYSE:AI), are banking on the hottest trend, and during Q2 Blackrock added shares of both to its portfolio.
Given Blackrock’s standing in the investing world, it’s worth giving these two a closer look to get an idea of what’s behind these buys. And if we take a look inside the TipRanks platform, we can also see how Wall Street’s analyst community thinks the next 12 months will pan out for these AI players. Let’s dive in.
SoundHound AI
SoundHound AI has been a big AI beneficiary, and you can put the beginning of its ascent down to an endorsement from the biggest AI name out there – Nvidia. News of a modest stake from the chip giant earlier this year helped set in motion SOUN’s period of big gains, and while the stock has retreated from its March highs, the year-to-date returns still stand at a hefty 133%.
The company specializes in voice-enabled AI and conversational intelligence. It offers a voice AI platform that allows businesses to integrate advanced voice recognition and natural language understanding into their products, enabling hands-free voice interactions across various devices and services. SoundHound AI touts its proprietary Speech-to-Meaning and Deep Meaning Understanding tech as providing faster and more accurate voice responses by understanding user queries in real-time. The company’s solutions are used in industries ranging from automotive to customer service, aiming to create seamless and intuitive voice experiences.
Encouragingly, the company’s recent Q2 report revealed significant progress. A surge in customer demand has nearly doubled its bookings backlog to $723 million, almost twice the amount recorded in 2Q23. Additionally, revenue grew by 53.8% year-over-year, reaching $13.5 million, slightly surpassing analyst expectations. This growth was driven by both organic demand and the positive impact of the SYNQ3 acquisition completed in Q1.
The biggest piece of news, however, was reserved for another acquisition. SoundHound AI disclosed plans to acquire Amelia, a fellow conversational AI company, in a deal valued at $80 million in cash and equity.
Blackrock must see more growth on the menu, then. During the second quarter, the investment giant increased its SOUN holdings by nearly 74%, acquiring 9,100,406 shares. These are currently worth $45.5 million.
This vote of confidence from BlackRock aligns with the views of industry experts, including Wedbush analyst Daniel Ives, who emphasized the strategic importance of the Amelia acquisition.
“We view the Amelia acquisition as a strategic move by significantly expanding the company’s reach into new large TAM markets while notably expanding its growth trajectory with stable revenue pillars across Automotive/Restaurant and strong monetization capabilities to capture demand from enterprises across industries,” he explained. “This acquisition is expected to be accretive to earnings in 2H25 which will take SOUN’s FY25 revenue guidance from $100+ million to $150+ million…”
These comments form the basis for Ives’ Outperform (i.e., Buy) rating on SOUN, which is backed by a Street-high price target of $9, implying the shares will surge ~78% over the next year. (To watch Ives’ track record, click here)
Elsewhere on the Street, 4 other analysts have recently weighed in on SoundHound, with 3 Buys and 1 Hold, making the consensus view a Strong Buy. At $7.50, the average price target factors in 12-month returns of 50%. (See SOUN stock forecast)
C3.ai
Having AI as your ticker might have been a prescient move from C3.ai but, somewhat ironically, it hasn’t done much good for the stock in 2024’s AI-driven bull market. The shares are actually down by 15% on a year-to-date basis.
Given its credentials, that seems a bit surprising. C3.ai is an enterprise AI software company that provides a platform for developing and deploying AI applications at scale. It helps businesses harness big data and optimize operations across various industries. C3.ai’s platform is known for its versatility, scalability, and ability to integrate with existing systems, making it a preferred choice for companies seeking to leverage AI for competitive advantage.
The company has also been delivering strong recent quarterly readouts. In the most recent one (FQ4 – April quarter), revenue rose by 19.6% year-over-year to $86.6 million, beating the analysts’ forecast by $2.2 million. At the other end of the spectrum, adj. EPS of -$0.11 trumped expectations by $0.19.
Nevertheless, concerns about its ongoing lack of profitability and headwinds associated with a transition to a consumption-based pricing mode have both played their part in depressing sentiment.
That said, Blackrock evidently thinks the company is well setup to succeed. During Q2, it bought 818,368 AI shares (currently worth over $20 million), increasing its holdings by 12%.
Looking at how things have panned out with other tech innovations, Northland’s Michael Latimore, an analyst ranked in the top 3% of Wall Street stock experts, also expects the company to eventually benefit from artificial intelligence’s adoption.
“Internet routers and fiber, then services and apps. PC hardware, then software. Consumer use, then enterprise. We expect the same evolution to take place with AI, and see C3.ai as a direct beneficiary,” the 5-star analyst explained. “We believe C3.ai is through the main part of its transformation to a consumption-based model, providing more visibility to growth acceleration. Pilot growth should remain robust. Our mid-term revenue build highlights a potential for further growth acceleration.”
Conveying his confidence, Latimore rates AI shares as Outperform (i.e., Buy), while his $35 price target factors in one-year returns of ~43%. (To watch Latimore’s track record, click here)
The Street’s overall take here offers something of a conundrum. On the one hand, the stock only claims a Hold consensus rating, based on a mix of 5 Holds, 4 Buys and 2 Sells. However, the average price target, at $32.33, suggests shares will appreciate by 32% in the months ahead. (See C3.ai stock forecast)
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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.
