Investment Decision: Should SoundHound or GitLab Be Your Preferred Mid-Cap AI Stock for 2025?
Looking for AI-powered stocks with room to grow beyond the $10 billion market cap mark? Check out SoundHound AI (SOUN 8.60%) and GitLab (GTLB 2.79%). These two mid-cap companies have made their marks in the AI sphere, and we'll delve into which one may be the better investment for 2025.
Opportunities on the horizon
Although they operate in different spheres, SoundHound and GitLab both leverage AI to propel their businesses.
SoundHound operates Houndify, a voice AI platform that helps AI voice assistants engage with users more naturally and conversantly. By integrating speech-to-meaning tech and deep-meaning-understanding tech, Houndify allows AI assistants to process speech in real-time, comprehending user intents. Recent acquisitions like Amelia have expanded SoundHound's footprint into various industries, such as telecom, healthcare, insurance, retail, and banking.
GitLab's forte is DevSecOps, a platform that software developers use to create code in a secure environment with cybersecurity integrated throughout the development process. GitLab's AI-powered tools also offer suggestions and automated coding solutions to programmers, streamlining the coding experience.
Both companies have proven successful in terms of revenue growth. SoundHound's growth rate is faster, albeit from a smaller base. In the third quarter of fiscal 2025, SoundHound's revenue grew 89%, aided by Amelia's acquisition in August. GitLab, meanwhile, posted a 31% revenue growth, averaging 30-40% growth over the last six quarters.
SoundHound's revenue growth may be commendable; however, GitLab boasts higher gross margins, crucial for converting revenue into profit. During the third quarter of fiscal 2025, GitLab's gross margins were a staggering 89%, while SoundHound's were 49%. Although SoundHound's margins are likely to improve with revenue growth, the current gap is significant.
Future prospects
GitLab's future growth is driven by rising demand for GitLab Duo's AI offerings, increasing adoption of its higher-tier Ultimate platform, and the successful launch of GitLab Dedicated, a solution for data isolation and regional data residency.
SoundHound, on the other hand, aims to become the leading AI voice commerce platform, processing complex questions across industries with unique interactions and jargon. SoundHound's ambitious goal is equally ambitious, but numerous competitors like Salesforce and Microsoft (with Nuance) are also vying for the same slice of pie.
Valuation and verdict
As of now, GitLab is the more economically attractive option, with a lower price-to-sales ratio of 9.9 times analysts' 2025 estimates compared to SoundHound's 23.5 times. GitLab's strong gross margins, consistent revenue growth, and more established market model make it the better investment choice for 2025, despite SoundHound's significant opportunity in AI commerce technology.
In terms of finance and investments, SoundHound's rapid revenue growth, particularly in the third quarter of fiscal 2025, is notable, boosted by the Amelia acquisition. However, GitLab's higher gross margins, at 89%, provide a stronger foundation for converting revenue into profit, making it a financially attractive option for investors looking for a solid return.
Moving forward, both companies have exciting prospects. GitLab's focus on expanding its AI offerings, such as GitLab Duo, and launching products like GitLab Dedicated, will likely contribute to its future growth. SoundHound, aiming to become the leading AI voice commerce platform, faces stiff competition, but its potential to revolutionize interactions and jargon across industries is significant. This duality in future prospects highlights the need for careful analysis and consideration when investing in either of these AI-driven companies.
