Artificial intelligence (AI) stocks performed extraordinarily well this year -- and I'm not just talking about the AI chip king Nvidia. Since many believe AI can radically disrupt almost every part of daily life, investors are hunting for the best stocks in nearly every industry from cybersecurity to business analytics to consumer goods.
Two stocks that garnered interest are Palo Alto Networks (NASDAQ: PANW) and SoundHound AI (NASDAQ: SOUN). Palo Alto has performed well this year, with its stock up over 30%. Meanwhile, SoundHound AI, which has a much smaller market cap than Palo Alto, has been a rocket ship with its stock up 630%. Wall Street analysts see significant downside in one of these stocks but recommend buying the other. Let's take a look.
SoundHound helps companies create or add artificial intelligence voice capabilities to their products, services, and apps. The company's solutions include AI voice assistants, automatic speech recognition, real-time transcription services, and restaurant phone answering and ordering. Automotive companies like Mercedes-Benz and Honda use SoundHound for voice solutions in the vehicles they sell to consumers.
Stocks that have been on a run like SoundHound AI will be vulnerable to analysts and maybe even short-sellers calling for a pullback. The company is not yet profitable and has a $5.7 billion market cap. Recently, SoundHound closed its acquisition of Amelia, a leader among conversational AI for large companies, which management believes will help SoundHound expand into new sectors such as finance and healthcare.
According to Tipranks, five analysts have issued research reports on the company over the past three months. Three rate the company a buy and two a hold. However, the average price target among these analysts is $8.10, implying roughly 44% downside for the stock, as of Dec. 9. The high estimate for the stock is $10, while the low estimate is $6.
Ladenburg Thalmann Financial Services recently downgraded SoundHound from a buy to a neutral rating and maintained its $7 price target. The firm noted that SoundHound reported "solid" results in its recent quarter, but thinks the acquisition of Amelia and massive gains this year will lead to some near-term pressure. The company trades at a whopping 68 forward price-to-sales ratio, so while the company looks solid and has immense potential I think you'll be able to buy shares at cheaper levels sooner rather than later.