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Innodata and SentinelOne are more reasonably valued small-cap AI plays.
SoundHound AI‘s (SOUN 15.38%) stock soared more than 940% over the past 12 months. The developer of speech and audio recognition tools dazzled investors with its accelerating growth and support from Nvidia, which increased its stake in the company and integrated its services into its own Drive platform.
Its revenue grew 47% in both 2022 and 2023, and it expects 79%-85% growth in 2024 as it grows organically and integrates several recent acquisitions. For 2025, it expects its revenue to rise 86%-110% from the midpoint of that forecast.
Image source: Getty Images.
That rapid growth is being driven by the soaring demand for its AI-driven Houndify speech recognition services, which are already being used by automakers like Hyundai, smart TV makers like Walmart‘s Vizio, and fast food chains like Church’s Chicken. Houndify is an attractive platform because it can be easily customized for different industries and companies, and it doesn’t share any data with tech giants like Microsoft and Alphabet‘s Google.
But with a market cap of $8.05 billion, SoundHound now trades at 49 times its 2025 sales. It’s still unprofitable, and it’s increased its number of outstanding shares by 88% via secondary offerings and stock-based compensation since it went public by merging with a special purpose acquisition company (SPAC) in April 2022.
Therefore, SoundHound’s stock could still be cut in half over the next two years if it doesn’t meet its own lofty expectations. Meanwhile, two more reasonably valued AI stocks — Innodata (INOD 8.17%) and SentinelOne (S 0.45%) — might have a shot a outperforming SoundHound and exceeding its market cap over the next two years.
Innodata cleans up data for AI applications
When developing new AI applications, large companies often spend 80% of their time preparing their data and just 20% on actually training their AI algorithms. That approach is costly and inefficient for companies that need to feed massive amounts of data into their large language models (LLMs) and AI services.
To break that bottleneck, Innodata launched a suite of task-specific microservices for preparing data for AI applications in 2018. Five of the “Magnificent Seven” companies quickly adopted those services to organize their AI-oriented data, and Innodata’s sales grew at a steady compound annual growth rate (CAGR) of 12% from 2019 to 2023.
But from 2023 to 2026, analysts expect Innodata’s revenue to grow at an even faster CAGR of 42% as the generative AI market expands, its Magnificent Seven clients ramp up its spending, and it gains even more customers. They also expect it to turn profitable this year and grow its earnings per share (EPS) at a CAGR of 21% over the next two years.
That would represent a remarkable turnaround for Innodata, which went public back in 1993 and had been considered a slow-growth IT services and software provider throughout most of its history. With a market cap of $1.2 billion, Innodata still looks reasonably valued at less than 6 times next year’s sales — so it certainly has a shot at overtaking SoundHound AI over the next two years if the market revalues it as a hypergrowth stock.
SentinelOne aims to automate all cybersecurity services
Most cybersecurity companies still rely on human analysts to check their data and update their algorithms. However, SentinelOne aims to replace all of those analysts with automated AI algorithms across its Singularity XDR (extended detection and response) platform. It believes that streamlined approach delivers faster and more accurate results.
SentinelOne deploys its services through both on-site and cloud-native services. Its revenue more than doubled in fiscal 2021, fiscal 2022, and fiscal 2023 (which ended in January 2023). It kept gaining big customers (which generate at least $100,000 in annual recurring revenue), while its dollar-based net revenue retention rate (which gauges its year-over-year growth per existing customer) remained comfortably above 100%.
But SentinelOne’s revenue only rose 47% in fiscal 2024 as the macro headwinds made it harder to land new contracts, and it anticipates 32% growth in fiscal 2025. It also faces stiff competition from more diversified cybersecurity companies, and it’s expected to stay unprofitable for the foreseeable future. That slowdown rattled its investors, but analysts still expect its revenue to grow at a robust CAGR of 27% from fiscal 2024 to fiscal 2027 as the macro environment warms up again.
With a market cap of $7.2 billion, SentinelOne trades at just 7 times next year’s sales. That makes it more reasonably valued than SoundHound, and it could soar higher once its business stabilizes and it meaningfully narrows its losses. It could also be an attractive AI-oriented acquisition for a larger cybersecurity company.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Microsoft, Nvidia, and Walmart. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
