The Undervalued Growth Plays: Why DigitalOcean and Ambarella Could Surpass SoundHound AI by 2026

Investors seeking to capitalize on the AI revolution often overlook a critical question: At what price does growth justify valuation? SoundHound AI (SOUN), a conversational AI pioneer, has seen its market cap surge to $4.1 billion on a trailing twelve-month (TTM) price-to-sales (P/S) ratio of 36.2—a level that dwarfs even industry giants like NVIDIA (23.6). Yet its soaring valuation comes with a steep cost: a $22.3 million net loss in Q1 2025 and a cash burn that threatens future dilution. In contrast, DigitalOcean (DOCN) and Ambarella (AMBA) offer a compelling alternative: AI-driven revenue growth paired with valuation multiples that remain firmly grounded. Let's dissect why these two stocks are positioned to overtake SoundHound's market cap by June 2026—and why investors should act now.

The Overvaluation Trap: SoundHound's Fragile Highs

SoundHound's P/S ratio of 36.2 (as of Q2 2025) is a red flag. While its AI software—used by brands like Stellantis and Krispy Kreme—delivered 151% revenue growth to $29.1 million in Q1 2025, its losses and reliance on cash reserves ($246 million remaining) highlight a risky trade-off. To justify its current valuation, SoundHound must grow revenue at unsustainable rates or see its P/S ratio collapse. Historically, its P/S has already fallen from over 100 in late 2024 to 23.4 by year-end, a 77% drop. If it aligns with NVIDIA's P/S of 23.6, its market cap would drop to $2.7 billion—a level DigitalOcean could surpass with just a 58% stock rise.

DigitalOcean: Profitability Meets AI Momentum

DigitalOcean's $2.6 billion market cap and P/S ratio of 3.5 (vs. its 5.4 three-year average) signal undervaluation. Its cloud infrastructure serves small- and mid-sized businesses (SMBs), a segment increasingly adopting AI. In Q1 2025, AI revenue surged 160%, while total revenue grew 14% to $210.7 million. Crucially, profitability is intact: GAAP net income rose 171% to $38.2 million, and non-GAAP net income increased 30% to $55.4 million.

With SMBs representing 80% of U.S. businesses and underpenetrated AI adoption, DigitalOcean's AI tools—like its “AI for Developers” initiative—position it to capture a $45 billion SMB cloud market. A 58% stock gain would push its market cap to $4.1 billion, eclipsing SoundHound's current valuation. The path is clear: leverage its $246 million in cash, low P/S, and scalable AI revenue to fuel growth without dilution.

Ambarella: The Semiconductor Catalyst for AI's Next Wave

Ambarella ($2.846 billion market cap, P/S 8.84) is a hidden gem in the semiconductor sector. Its AI processors power video compression, image recognition, and autonomous driving systems—critical for markets like automotive ($65 billion by 2030) and IoT. In Q1 2025, its P/S rose from 5.73 to 8.84, reflecting investor confidence in its $341 million addressable market for edge-AI solutions.

Its AI chips are already in use by drone manufacturers and surveillance systems, and its recent partnerships with automotive firms suggest further upside. At a P/S ratio still half of NVIDIA's 26.25, Ambarella offers a rare combination: growth at a discount. A 43% stock increase would lift its market cap to $4.1 billion, overtaking SoundHound. With $240 million in cash and no debt, it can invest aggressively without compromising valuation.

The Case for a Switch: Why Investors Should Favor Valuation Discipline

SoundHound's premium is unsustainable. Its P/S ratio is 10 times higher than DigitalOcean's and 4 times Ambarella's, yet its cash burn and losses create execution risk. Meanwhile, DOCN and AMBA:
- Trade at P/S ratios 35% below historical averages, offering a margin of safety.
- Generate profitable growth: DOCN's 14% revenue growth with 30% net income expansion; Ambarella's AI-driven market expansion.
- Target $110 billion+ addressable markets (cloud AI for SMBs + edge-AI semiconductors), far larger than SoundHound's niche.

By June 2026, these fundamentals could push their combined market caps past $8.5 billion—twice SoundHound's current valuation.

Investment Thesis: Act Before the Market Catches On

Investors should:
1. Reduce exposure to SoundHound: Its valuation is a bubble waiting to pop.
2. Buy DigitalOcean (DOCN): A 58% upside to $4.1 billion is achievable with modest revenue growth.
3. Add Ambarella (AMBA): Its $4.1 billion target requires only moderate multiple expansion from current levels.

Both stocks offer low-risk, high-reward asymmetry: downside protection from their undervalued multiples and upside from AI adoption. SoundHound's overvaluation, by contrast, leaves little room for error.

In a market obsessed with growth at any price, valuation discipline is the ultimate growth strategy. DOCN and AMBA are the plays to capitalize on it—before the rest of the world does.

Data as of June 2025. Past performance does not guarantee future results. Always conduct independent research or consult a financial advisor.