(Bloomberg) -- Hearing-aid makers have become one of the stock market’s less likely artificial intelligence plays.

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Shares of Sonova Holding AG, a Swiss hearing-aid maker, have far outpaced peers since the first half of last year, fueled by buzz around a new device that applies real-time AI to help users distinguish speech within background noise — and is sold at a premium to other products.

“They are not the first company to incorporate AI, but they were the first one among hearing-aid makers to massively market it,” Julien Ouaddour, an analyst at Bank of America Corp., said in an interview. “The integration of a dedicated AI chip in Sonova’s new device also pushes the technological boundaries further.”

As markets digest Chinese AI firm DeepSeek’s challenge to the established narrative, investors are assessing what the next game-changer will be in a hearing-aid sector that Morgan Stanley estimates will be worth over $14 billion by 2026, from below $2 billion in 2000 — and whether consumers will be willing to pay for it.

“We have effectively seen the processing power of hearing aids accelerate with the help of artificial intelligence,” Morgan Stanley analysts including Robert Davies wrote in a note this month. “We expect AI to play an ever more important role, particularly as wholesalers look to software solutions as a future growth source.”

The response to Sonova’s device under its Phonak brand, called Audeo Sphere Infinio, has been positive in terms of users experiencing better hearing in noisy environments, Chief Executive Officer Arnd Kaldowski said on a November earnings call. Sonova shares are up more than 20% since the August launch, outpacing peer Demant A/S, while GN Store Nord A/S and hearing-aid retailer Amplifon SpA fell in that time. The Swiss firm’s stock rose about 1% on Thursday.

Hearing aids are “quite complex and I think a lot of the companies often don’t get credit for how complex it is to mimic natural hearing,” Catherine Tennyson, a healthcare portfolio manager at AXA Investment Managers, said in an interview. Sonova’s new device “seems to very much be seen as quite a step change for some audiologists in the space.”

Using AI in hearing-aid devices isn’t completely new. Demant started researching the technology more than a decade ago and launched its Oticon More device in late 2020, followed by Oticon Intent in early 2024. Demant’s products only use one chip in contrast to Sonova’s dual-chip device.

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“We do publish studies where we substantiate claims about improved sound processing and sound quality,” Ole Asboe Jørgensen, president of brand, R&D and quality, hearing aids at Demant, said in an interview. “In both cases we’ve seen significant improvements based on applying AI in our hearing aids.”

Demant, GN Store Nord and Amplifon declined to comment on their shares. Demant and GN Store Nord are scheduled to report earnings next week, while Amplifon will report results in March.

Beyond traditional hearing-aid makers, other companies are looking to incorporate AI into hearing solutions. Eyewear maker EssilorLuxottica SA this month bought Pulse Audition, a French startup with technology that can embed AI-based speech enhancement into glasses. GN Store Nord, Demant and Amplifon shares fell after the announcement, while Sonova shares were broadly flat.

Still, Sonova’s recent stock rally comes at a price. Its shares currently trade at about 27 times expected earnings, making it more than 40% more expensive than Demant and around 15% above its own average valuation over the past decade. The average analyst price target compiled by Bloomberg suggests no upside for the shares over the next twelve months.

Despite investor enthusiasm surrounding the launch, “we struggle to see the level of earnings upgrades that would be necessary to normalize these valuation multiples any time soon,” the Morgan Stanley analysts wrote.

“The outperformance is entirely due to the excitement around the new product,” Graham Doyle, an analyst at UBS Group AG, said in an interview. “The valuation suggests the market is expecting Sonova’s earnings to surprise and beat, but I don’t think that’s going to be the case.”

Sonova is scheduled to report results for the fiscal year in May. A spokesperson for the company declined to comment on the shares, but said the hearing-aid maker reaffirmed its guidance for the year at a conference this month.

--With assistance from Alberto Brambilla, Allegra Catelli and Jonas Ekblom.

(Adds Thursday’s share-price performance in sixth paragraph.)

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