SoundHound AI (NASDAQ: SOUN) has experienced a volatile year in the stock market. Initially, the stock surged after the revelation of Nvidia’s stake in the company. However, this was followed by periods of instability throughout 2024, and then a strong year-end. Unfortunately, the new year has not been favorable for SoundHound investors. As of this writing, shares of the company, recognized for providing voice artificial intelligence (AI) solutions to enterprise customers, have plummeted by 51% in 2025. The primary drivers behind this downturn include Nvidia’s divestment of its SoundHound investment coupled with the stock’s elevated valuation. While SoundHound may sustain significant long-term growth due to a substantial addressable market, trading at an expensive 41 times sales could continue to negatively impact the stock’s performance in the near term. Consequently, further declines in SoundHound’s stock price are expected in the coming year, potentially reducing its market cap below the current $4 billion. However, another company, currently trading at a significantly more attractive valuation, has been simultaneously exhibiting impressive growth. This company has the potential to surpass SoundHound’s market cap in the next year.
DigitalOcean Benefits From Surging Demand for Cloud-Based AI Services
DigitalOcean (DOCN 2.38%) with a market cap of $3.7 billion, is closely trailing SoundHound. Given the increasing demand for its on-demand cloud computing infrastructure—primarily utilized by developers, start-ups, and small businesses—and its attractive valuation, DigitalOcean may outperform SoundHound in the coming year. Specifically, DigitalOcean’s stock is currently trading at 5 times sales and 22 times forward earnings. This valuation presents a compelling investment opportunity, as the company’s AI-focused cloud computing solutions are helping it secure a greater share of customer spending. These trends are evident in the company’s recent quarterly financial results. In the fourth quarter of 2024, DigitalOcean’s revenue escalated by 13% year over year to $205 million, with earnings increasing by 11% to $0.49 per share. The slight deceleration in earnings growth last quarter can be attributed to DigitalOcean’s investment in graphics processing units (GPUs) to meet the high demand for cloud-based AI services. The company provides customers access to high-performance GPUs, such as Nvidia’s H100, through its GPU Droplets service. This enables clients to lease its infrastructure on demand, allowing them to run large language models (LLMs), as well as build, scale, and deploy generative AI applications. The strong demand for DigitalOcean’s cloud-based AI tools is one reason average revenue per user (ARPU) grew 14% year over year in Q4. This is an increase over the 6% growth reported in the same quarter last year. This metric is expected to continue improving as DigitalOcean continues to enhance its platform by introducing new AI-focused services.
In January, the company launched the DigitalOcean GenAI Platform, a solution designed to assist customers in swiftly building, deploying, and scaling AI agents using popular LLMs, including Anthropic and Mistral AI. This platform is currently in the public beta testing phase. DigitalOcean indicates that over 1,000 AI agents have already been created utilizing this platform during the testing phase, with approximately 90% of these agents created by existing customers. This agentic AI platform provides DigitalOcean with yet another opportunity to increase revenue from its customers’ wallets through cross-selling initiatives. It could also attract new customers, given that the market for AI agents is projected to grow at an annual rate of 46% through the end of the decade, according to Grand View Research.
DigitalOcean’s Potential to Overtake SoundHound’s Market Cap
DigitalOcean has projected revenue of $880 million in 2025 at the midpoint of its guidance range, signifying a 13% increase from the previous year. However, due to the rapidly expanding demand for its cloud-based AI services, the results could be even better. This could lead to a market reevaluation, potentially resulting in a higher sales multiple. Assuming DigitalOcean trades at 7.5 times sales after a year—consistent with the U.S. technology sector’s average price-to-sales ratio—and achieves $880 million in revenue, its market capitalization could reach $6.6 billion. This would be sufficient to surpass SoundHound AI’s market cap, particularly given that SoundHound’s potential for further growth might be limited by its high valuation.
