Better AI Stock: SoundHound AI vs. BigBear.ai

The article evaluates SoundHound AI (SOUN) and BigBear.ai (BBAI), two AI stocks that have seen substantial gains but are now considered overvalued due to market hype. SoundHound AI, specializing in voice recognition, exhibits accelerating revenue growth, albeit with declining gross margins and continued unprofitability, trading at a high 28x its projected 2027 sales. BigBear.ai, focused on AI data analysis for edge networks, faces near-term revenue declines despite a growing government contract backlog, and is valued at 17x its 2027 sales. The analysis concludes that while both are speculative, SoundHound AI is the marginally better buy due to its faster growth, fewer competitors, and healthier gross margins in the expanding voice AI sector.

Analysis

SoundHound AI (SOUN) and BigBear.ai (BBAI), both SPAC-backed AI companies, have seen their stock prices more than quadruple over the past 12 months, reflecting broad market enthusiasm for AI. Despite this significant appreciation, the general sentiment is cautious, suggesting current valuations may incorporate substantial AI-driven hype.

SoundHound AI demonstrates impressive revenue acceleration, with growth rates of 47% in 2023, 85% in 2024, and 187% in H1 2025, partly fueled by strategic acquisitions. However, this growth has come at the cost of profitability, as adjusted gross margins declined from 76.2% in 2023 to 55.3% in H1 2025 due to integration, lower-margin services, and rising costs, keeping the company GAAP unprofitable. Analysts project a 47% CAGR to $267 million by 2027, yet its current market cap of $7.4 billion implies a high valuation of 28 times projected 2027 sales.

BigBear.ai, focused on AI data analysis, experienced flat revenue in 2023, 2% growth in 2024, and an 8% decline in H1 2025, with a full-year 2025 decline of 16% expected, attributed to government contract disruptions. While its gross margin initially expanded to 28.6% in 2024, it subsequently shrank to 23.1% in H1 2025, and the company remains GAAP unprofitable despite a swelled backlog from new government contracts. Its $2.8 billion market cap values it at 17 times projected 2027 sales of $162 million.

Given the frothy market, both stocks carry significant valuation risk. SoundHound AI, despite its declining margins and high valuation, is considered the marginally better option due to its faster growth trajectory, fewer direct competitors, and healthier gross margins compared to BigBear.ai, which faces near-term revenue headwinds despite its strategic shift towards government contracts.

Key Decisions for Investors

• Investors should exercise extreme caution given the frothy valuations of both SOUN and BBAI, which appear to embed significant AI hype.
• Monitor SoundHound AI's ability to improve gross margins and achieve GAAP profitability as economies of scale develop, rather than solely focusing on top-line growth.
• For BigBear.ai, closely track the conversion of its government contract backlog into actual revenue and its impact on future gross margins, as near-term revenue declines present a significant risk.