Enhanced Artificial Intelligence Investment Option: BigBear.ai Outperforms SoundHound's AI Technology
The surge of artificial intelligence (AI) into the mainstream has significantly increased the worth of several AI-related shares. However, some of these stocks might be overpriced now. Nonetheless, there are still promising AI stocks to consider, such as BigBear.ai (BBAI 13.49%) and SoundHound AI (SOUN 3.19%).
BigBear.ai is a firm that utilizes AI to analyze an organization's data, helping them make better decisions based on that information. SoundHound, on the other hand, offers an AI-powered voice platform capable of comprehending human speech in 25 languages.
Just because these companies have AI in their names doesn't mean they are an automatic buy. You should evaluate each AI investment carefully.
BigBear.ai: Advantages and Disadvantages
BigBear.ai provides analytics technology used in various scenarios across various industries. An example is the company's $165 million, five-year contract with the U.S. Army in October to help the military transition into data-driven operations.
At Denver International Airport, BigBear.ai implemented biometric verification software this year to capture travelers' images and automatically verify their identities.
In March, BigBear.ai acquired Pangiam, which specializes in facial recognition and biometrics technology, enhancing BigBear.ai's capabilities in this rapidly growing sector. As a result, revenue increased by 22% year-over-year to $41.5 million in the third quarter.
However, BigBear.ai remains unprofitable, reporting a $12.2 million net loss in Q3 and carrying nearly $196 million in debt.
Analyzing SoundHound AI
SoundHound's technology is valuable across numerous industries. For instance, it can handle customer service phone calls and take food orders. In the automotive sector, car manufacturers like Stellantis have adopted SoundHound's AI voice system for voice-activated features in cars.
Like BigBear.ai, SoundHound made acquisitions to boost its business. In early 2023, it acquired AI firms SYNQ3 and Amelia, allowing it to expand its presence in the restaurant industry and enter new markets, such as healthcare and retail.
This led to an 89% sales growth in Q3 to $25.1 million. The acquisitions enabled SoundHound to diversify its revenue, improving its financial situation.
In Q3 of the previous year, 90% of SoundHound's revenue came from the automotive sector, with a single customer representing 72% of its revenue. If that customer had left, SoundHound's business might have collapsed. Now, that customer accounts for 12% of its revenue.
Similar to BigBear.ai, SoundHound is also unprofitable, reporting a $21.8 million net loss in Q3. However, its debt is lower than $40 million, and it recently paid off a $100 million debt.
Selecting Between BigBear.ai and SoundHound AI
Though neither BigBear.ai nor SoundHound is profitable, young tech companies often prioritize fast expansion over profits. As long as these AI firms exhibit substantial revenue growth, their lack of profitability is less concerning.
BigBear.ai's Q3 sales were impressive, but year-to-date, its revenue has slightly decreased from $114.6 million in 2023 to $114.4 million in 2024. Its inability to increase revenue year-over-year, combined with a considerable debt burden, is a red flag for a tech company in the booming AI sector.
In contrast, SoundHound's sales increased by 75% year-over-year to $50.2 million through three quarters.
Regarding their 2024 financial outlook, BigBear.ai initially expected at least $195 million in revenue for this year, but after announcing Q3 results on Nov. 5, management reduced that estimate to $165 million.
In a reversal, SoundHound updated its 2024 revenue outlook after releasing Q3 earnings on Nov. 12. Before the acquisitions, the firm projected a minimum of $63 million in 2024 sales, which it increased to $80 million after the acquisitions. It now targets at least $82 million in 2024 revenue.
Given SoundHound's substantial revenue growth, it appears to be the better AI investment compared to BigBear.ai. However, both stocks are risky investments, demonstrated by their high beta of around three, meaning they add volatility and risk to a typical stock portfolio.
Thus, while SoundHound might be a better choice among these two AI companies, its industry is in its early stages, and it has little historical performance to assess its long-term prospects. Therefore, SoundHound stock is only suitable for investors with a high risk tolerance.
Investing in AI firms like BigBear.ai and SoundHound requires careful evaluation, considering factors such as revenue growth and financial stability. Although BigBear.ai's third-quarter revenue increased by 22% year-over-year, the company remains unprofitable with a significant debt burden.
SoundHound, on the other hand, also reported impressive revenue growth of 89% in Q3, thanks to strategic acquisitions. While it's also unprofitable, its debt is lower, and it successfully paid off a substantial part of its debt recently. This financial management, coupled with SoundHound's diversified customer base, makes it a potentially attractive investment opportunity for those with a high risk tolerance in the rapidly growing AI sector.
