Is SoundHound AI a Risky Bet? Consider These 2 AI Stocks Instead

SoundHound AI, a developer of AI-powered speech and audio recognition tools, has been a polarizing investment since its public debut three years ago. Initially, investors were impressed by its rapid growth, expanding customer base, and the disruptive potential of its tools, which can be customized for restaurants, vehicles, consumer electronics, and other markets. Nvidia's minor investment in the company added to the positive sentiment.

However, much of SoundHound's growth was driven by acquisitions rather than organic improvements, and the company remained deeply unprofitable. It also faces stiff competition from similar voice recognition platforms. Many investors fled after Nvidia sold its entire stake earlier this year.

Analysts expect SoundHound's revenue to increase at a compound annual growth rate (CAGR) of 48% from 2024 to 2027, and its adjusted EBITDA to turn positive by the final year. Despite these promising growth projections, the stock is richly valued at 20 times this year's sales, making it vulnerable to bad news. Instead of investing in SoundHound AI, it might be wiser to consider two other AI-oriented stocks that are on firmer ground: Arista Networks and Micron.

1. Arista Networks

Arista Networks is a leading networking hardware and software company. Unlike its larger competitor, Cisco, which locks in customers with proprietary hardware and software, Arista uses off-the-shelf chips and open-source software 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 clients to easily monitor their cloud deployments.

Arista's flexible, modular, and scalable strategy has made it a top choice for cloud giants like Meta Platforms and Microsoft. From 2019 to 2024, Arista's revenue rose at a CAGR of 24%, while its adjusted net income increased at a CAGR of 30%. Analysts expect its revenue and earnings per share (EPS) to grow at a CAGR of 19% and 15%, respectively, from 2024 to 2027. This growth is driven by the soaring need for cloud and AI infrastructure upgrades, its gradual expansion into the enterprise and campus markets, and the rising adoption of its integrated security services. Arista's stock isn't cheap at 39 times this year's earnings, but it has plenty of room to grow.

2. Micron

Micron is one of the world's largest producers of DRAM and NAND memory chips. While it controls smaller slices of both markets compared to South Korea's Samsung and SK Hynix, Micron manufactures slightly denser DRAM chips with its 1-beta process, making 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 GPUs over new memory chips. However, from fiscal 2024 to fiscal 2027, analysts expect Micron's revenue and EPS to grow at a CAGR of 23% and 148%, respectively. This 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.

Micron's stock trades at just 13 times next year's earnings, a lower valuation due to its cyclical nature. However, it has significant upside potential in this boom cycle as the cloud and AI markets generate fresh tailwinds for its business.

While SoundHound AI presents a promising growth trajectory, the risks are high. Arista Networks and Micron offer more reliable and stable opportunities in the booming AI market.