Title: Assessing Palo Alto Networks vs. SoundHound AI Stocks: Wall Street's Uneven View
AI stocks have been on a roll this year, with industry heavyweights like Nvidia leading the charge. Investors are eagerly searching for the best AI stocks across various sectors, including cybersecurity, business analytics, and consumer goods. Two stocks that have garnered attention are Palo Alto Networks (PANW -2.05%) and SoundHound AI (SOUN -3.54%).
Palo Alto Networks has been a steadfast performer, with its stock soaring over 30% this year. On the other hand, SoundHound AI, despite its smaller market cap, has been a gaming stock, with its share price skyrocketing an astonishing 630%. Wall Street analysts have mixed opinions, predicting downside for one stock and recommending buying the other.
SoundHound AI: Potential for Significant Downside
SoundHound aims to empower companies by integrating AI voice capabilities into their products, services, and apps. The company's offerings span AI voice assistants, automatic speech recognition, real-time transcription, and restaurant phone services. Prominent names like Mercedes-Benz and Honda rely on SoundHound's voice solutions for their vehicles.
However, stocks like SoundHound, which have experienced phenomenal growth, may be vulnerable to scrutiny. Currently, SoundHound is not turning a profit, with a market cap of $5.7 billion. In late 2024, SoundHound completed its acquisition of Amelia, a conversational AI leader for large corporations. Management believes this acquisition will help SoundHound expand into sectors like finance and healthcare.
According to TipRanks, five analysts have released reports on SoundHound over the past three months. Of these analysts, three have recommended buying the stock, while two have suggested holding. However, the mean price target among these analysts suggests a potential 44% drop in the stock price, standing at $8.10 as of Dec. 9. The highest and lowest price targets are $10 and $6, respectively.
Ladenburg Thalmann Financial Services recently transitioned its stance on SoundHound, downgrading it from a buy to a neutral rating while retaining a $7 price target. The firm highlighted SoundHound's strong Q3 2024 results but expressed concerns about the Amelia acquisition and its implications for near-term performance. SoundHound currently trades at a staggering 68x forward price-to-sales ratio, which, despite the company's potential, could result in buying opportunities in the near future.
Palo Alto Networks: Anticipated Growth
Palo Alto Networks leverages machine learning and AI to safeguard businesses from advanced cyber threats. Their network security platform provides a range of subscription services, including advanced threat protection, URL filtering, SaaS security, protective network measures, and more.
In the ever-digital business world, cyber threats pose significant risks to corporations and their customers. Cyber attacks can inflict serious damage by shutting down systems and jeopardizing customer data. Palo Alto derives a substantial portion of its revenue from subscription services, which have shown consistent growth. Last year, subscription revenue surged by 19%.
According to TipRanks, 36 analysts have published research on Palo Alto over the past three months. Among these analysts, 31 have recommended buying the stock, four have suggested holding, and one has recommended selling. The average price target indicates a potential 4.5% increase for the stock. Argus raised its price target for Palo Alto in response to the company's impressive Q4 2024 results and its strong positioning in a rapidly growing market.
Although the stock is pricey, trading at 63 times earnings, Argus analysts remain optimistic. They predict that cybersecurity will play an increasingly crucial role in the world and could result in substantial market opportunities for companies that establish themselves early on. Given these conditions, investing in Palo Alto Networks may warrant a higher valuation.
Investors might want to consider the mixed analyst opinions towards finance-targeting stocks like SoundHound AI, with some predicting a potential 44% drop in its price. Meanwhile, Wall Street analysts widely recommend buying Palo Alto Networks, anticipating a 4.5% increase in its stock price.
