AI-Powered Growth: Two Stocks Poised to Thrive in 2025
The artificial intelligence (AI) revolution is transforming industries and driving stock market success stories. In 2024, companies that leveraged AI capabilities saw their stock prices soar, and this trend is expected to continue in 2025. Two companies, SoundHound AI (NASDAQ: SOUN) and Palo Alto Networks (NASDAQ: PANW), are poised to benefit from AI advancements, but Wall Street expects only one to repeat its strong performance.
SoundHound AI: A Leader in Conversational Intelligence
SoundHound AI has been a pioneer in audio recognition and natural language processing, enabling humans to converse with computers. The company’s acquisition of Amelia, an enterprise conversational AI leader, expanded its customer base and diversified its revenue streams. SoundHound’s revenue growth accelerated to 89% in the third quarter, with a combined backlog of subscriptions exceeding $1 billion. Management expects revenue to reach $165 million in 2025, nearly double its 2024 expectations.
A Valuation Concern
Despite SoundHound’s impressive growth, its stock valuation is a concern. With a price-to-sales ratio of about 29 times the midpoint of management’s 2025 outlook, the stock is considered expensive. While the company is executing well and has a strong growth trajectory, its valuation may be a barrier for investors.
Palo Alto Networks: A Cybersecurity Leader
Palo Alto Networks is a leading enterprise cybersecurity provider, offering hardware and software services to protect clients’ networks from unauthorized access. The company’s machine learning capabilities enable it to detect threats and close vulnerabilities quickly. As more enterprises shift to hybrid cloud approaches, Palo Alto’s services are in high demand. The company’s remaining performance obligations grew 20% year over year in the first quarter of fiscal 2025, indicating a strong pipeline of business.
A More Attractive Valuation
Palo Alto Networks trades at a price-to-sales ratio of about 12.2 times analysts’ 2025 consensus estimate, making it a more attractive option compared to SoundHound AI. The company’s shift towards software-based next-gen security is expected to have a positive impact on its gross margin over time.
Which Stock Will Head Higher in 2025?
Wall Street expects Palo Alto Networks to outperform SoundHound AI in 2025, driven by its strong growth trajectory and more attractive valuation. While SoundHound AI has impressive growth potential, its valuation concerns may deter investors. Palo Alto Networks, on the other hand, offers a compelling combination of growth and value.
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