Better AI Stock: BigBear.ai vs. SoundHound AI

Core Insights - The article discusses the struggles of two AI companies, BigBear.ai and SoundHound AI, which went public through SPAC mergers but have since seen significant declines in their stock prices due to missed growth expectations and challenging market conditions [1][2]. Company Analysis: BigBear.ai - BigBear.ai specializes in data mining and analytics tools, primarily serving large government agencies and enterprise customers [3]. - The company initially projected a compound annual growth rate (CAGR) of 40%, expecting revenue to grow from $140 million in 2020 to$ 388 million in 2023, with gross margins expanding from 30% to 50% [3]. - However, from 2020 to 2023, BigBear.ai's revenue grew at a CAGR of only 3.5%, reaching $155 million, and its gross margin declined to 26% in 2023 [4]. - The company faced challenges due to the bankruptcy of a major customer and overestimated its growth potential, leading to the resignation of its CEO in October 2022 [4][5]. - The new CEO has focused on cost-cutting and business rightsizing, with expectations of revenue growth of 26% to 39% in the current year [5]. - BigBear.ai's stock is currently trading at 2 times this year's sales, indicating it may be undervalued, but there are concerns about its long-term organic growth potential [5]. Company Analysis: SoundHound AI - SoundHound AI develops audio and speech recognition tools, with a flexible platform that allows companies to create their own speech tools [6]. - The company initially projected a CAGR of 104%, expecting revenue to grow from$ 13 million in 2020 to $110 million in 2023, with gross margins increasing from 55% to 77% [6]. - In reality, SoundHound generated only$ 46 million in revenue in 2023, representing a CAGR of 52%, while its gross margin rose to 75% [7]. - The company has faced stiff competition from larger tech firms and laid off nearly half its workforce last year, with expectations of not achieving positive adjusted EBITDA until 2025 [7]. - Despite a projected revenue increase of about 52% this year, SoundHound's stock is considered expensive at 21 times this year's sales [7]. Investment Perspective - Between the two companies, SoundHound AI is viewed as the better investment option due to its faster growth, organic revenue increase, wider competitive moat, and higher gross margins [8].