Recent trends indicate that smaller AI stocks, such as SoundHound and GitLab, are poised to outperform their larger counterparts. While megacap technology firms have led the artificial intelligence (AI) narrative, these emerging companies are making significant strides with innovative approaches.
SoundHound: Transforming AI Interaction
SoundHound AI focuses on voice-driven technology, distinguishing itself from many larger AI firms. Its speech-to-meaning platform understands user intent in real-time, mimicking natural human conversation. This unique feature positions SoundHound advantageously as the market evolves from basic chatbots to more sophisticated autonomous agents.
Last year, SoundHound acquired Amelia, which enhanced its capabilities beyond its original focus on the automotive and restaurant sectors. Amelia introduced virtual agents that cater to complex industries like healthcare and finance, integrating industry-specific knowledge and compliance requirements. This merger resulted in the launch of Amelia 7.0, which operates more like a digital employee than a conventional assistant.
The company is in the process of migrating 15 major enterprise clients to this new AI system. Additionally, SoundHound’s latest acquisition of Interactions will support its orchestration of AI agents across various platforms. The integration of AI vision technology further expands its offerings.
SoundHound has experienced impressive revenue growth, with a 217% year-over-year increase to $42.7 million last quarter. Management anticipates achieving adjusted EBITDA profitability by the end of 2025, a crucial milestone for the company’s future.
GitLab: Enhancing Developer Productivity
GitLab has carved a niche as a vital tool for software developers. Initially a DevSecOps platform for code management, it has evolved into a comprehensive software development lifecycle solution. GitLab’s Duo AI agent significantly automates repetitive tasks, allowing developers to dedicate more time to writing code.
Typically, developers spend just 20% of their time coding. Therefore, enhancing efficiency through automation can dramatically increase productivity. Contrary to fears that AI may reduce the need for human coders, GitLab has observed an increase in software projects, driving demand for its platform.
GitLab has sustained robust revenue growth, reporting increases between 25% and 35% for the past eight quarters. Recently, it achieved a 29% revenue spike to $236 million. This growth is primarily due to existing customers expanding their usage and upgrading to more advanced plans. The company boasts a 121% dollar-based net retention rate over the last year.
Looking ahead, GitLab is transitioning to a hybrid seat-plus-usage pricing model. This strategy not only provides upside as usage increases but also safeguards against potential decreases in project developers due to AI advancements. GitLab’s steady revenue trajectory and favorable pricing model position it as an exceptional investment opportunity within the AI sector, particularly given its attractive valuation with a forward price-to-sales ratio of under seven times estimated 2026 earnings.
Conclusion
Both SoundHound and GitLab exemplify how smaller AI stocks can capitalize on the growing demand for artificial intelligence solutions. Their unique offerings and strategic positioning suggest they may outshine larger tech firms in the evolving market landscape.
