AI Stocks Surge: NVIDIA Leads the Pack as Voice AI Contender SoundHound AI Gains Traction

1 Top Artificial Intelligence (AI) Stock Ready for a Bull Run | The Motley Fool

AI stocks have skyrocketed in value. One little-known gem looks ready to join the pack. The AI craze has taken the market by storm, dominated by chipmaker Nvidia. Over the last three years, Nvidia stock has skyrocketed in value by nearly 400%. But there are other AI stocks worth considering right now. One in particular -- a little-known gem with a relatively small market cap -- looks ready for a bull run. If you want to invest in AI stocks with maximum potential upside, take a close look at SoundHound AI (SOUN 6.21%). It's rare to find a company with this much growth potential trading at such a discounted valuation. SoundHound was founded in 2005 by some experienced tech entrepreneurs. As its name suggests, its target category is sound, whether that's voice-enabled AI assistants or music recognition apps. Wherever humans interact with sound, SoundHound wants to improve the experience using AI. One of SoundHound's first success stories was with personal vehicles. In 2015, for example, its partnership with Hyundai resulted in the first music recognition service that shipped standard. In this case, Hyundai Genesis owners were able to chat with their car about what music was currently playing. That innovation, mind you, was nearly a decade ago. In the years since, SoundHound has partnered with more than a dozen other vehicle manufacturers including Jeep, Dodge, Kia, Honda, and Fiat to augment the driver experience through AI voice and sound services. More recently, SoundHound expanded into additional end markets. It's signed fast casual restaurants like Applebee's, Five Guys, and Chipotle to deals that will test SoundHound's AI capabilities in drive-thrus, which could help lower costs and boost efficiency. And SoundHound also signed deals to power smart televisions, call centers, and healthcare services. Any industry, product, or service that uses verbal communication is a potential use case for SoundHound's technology, which is backed by more than 200 patents. Every new deal gives the company more data to train its models on, and thus advances its ability to sign more clients and strengthen its technology even more. It's not hard to imagine the upside potential for SoundHound's business model, and thus upside in its stock price. Valued at just $1.6 billion, the company is one of the lowest-valued AI companies on the public market. AI giant Nvidia clearly sees value in what SoundHound is doing. Earlier this year, Nvidia invested nearly $4 million to take a 0.6% stake in the company. Around the same time, SoundHound revealed its new vehicle AI platform -- powered by Nvidia chips -- that can handle AI requests without any external connectivity. "Among a range of use cases," a company statement said, "the new solution will let drivers access SoundHound Vehicle Intelligence, a product that instantly delivers information directly from the car manual and other relevant data sources using natural speech." With SoundHound, you can literally chat with your car about its maintenance history, performance issues, and recommendations for improving its drivability and lifespan. No bulky user manual required. It is use cases like this that could eventually become standard in every vehicle sold. And SoundHound is leading the way. Not just in vehicle AI systems, either. It's expanding into new categories seemingly every quarter, and it's had no problem signing major clients to test the technology. But what about the valuation? On the surface, SoundHound stock looks ridiculously expensive at 21.8 times sales -- nearly as expensive as Nvidia at 26.6 times sales. But both companies are growing revenue so quickly that these high multiples will quickly prove reasonable. On a forward price-to-sales basis -- that is, what analysts believe each company will earn next year -- SoundHound trades at 10.3 times forward sales, while Nvidia still trades at 14.3 times sales. From this perspective, SoundHound looks like the relative bargain. Last quarter, sales grew by 54%. And given its smaller size, it may prove able to keep up these high growth rates for longer than Nvidia. Other investors may balk at SoundHound's high multiples. But it's the diminutive market cap that should get you excited. In many ways, the AI revolution has just begun. SoundHound's early success and rapid growth rates should attract plenty of long-term investors.

Nvidia Doubled Its Money on This Artificial Intelligence (AI) Stock. Should You Buy It Too? | The Motley Fool

SoundHound AI is a leader in conversational AI technologies, and it's amassing an impressive list of customers. Back in February, Nvidia (NVDA -4.08%) released its first-ever 13-F filing, which revealed that the company bought a handful of stocks in the final quarter of 2023. Each of them has a presence in the artificial intelligence (AI) industry, so it's a good way for Nvidia to capture value from that space outside its core semiconductor business. Nvidia bought 1.7 million shares of SoundHound AI (SOUN -2.90%), which were valued at $3.6 million at the end of 2023. With SoundHound stock now trading at $4.50, Nvidia's position is worth around $7.8 million -- implying a whopping 116% gain in less than a year. SoundHound is a specialist in conversational AI, and it has accumulated an impressive list of customers. The company's revenue is growing quickly, and management's forecast for the future is incredibly strong. So should investors follow Nvidia into the stock? SoundHound has developed a suite of conversational AI products for companies in the hospitality, automotive, and food service industries. They are trained to recognize voice inputs and respond in kind, so the user can leverage the power of AI without having to type a single word. Restaurant chains use SoundHound AI to autonomously take customer orders in the drive-thru and in-store, which reduces the workload on employees. Family sports bar and grill chain Beef 'O' Brady's just rolled out SoundHound's AI ordering system across all corporate locations, and it has given franchisees the option to use it, too. Many restaurants also use SoundHound's Employee Assist software, which is custom trained for each location to give workers information about the menu, internal policies, and more. Chipotle, Krispy Kreme, and Five Guys are just some of SoundHound's other notable restaurant customers. On the automotive side, SoundHound's Chat AI voice assistant is now live across six brands from Stellantis, including Peugeot and Alfa Romeo. It's capable of feeding the driver information on a variety of topics on command, whether it's the weather, sports scores, or the status of an upcoming flight. Plus, SoundHound's AI Vehicle Intelligence product is trained on the manual of each vehicle, so drivers can instantly access information about its features. At the beginning of August, SoundHound announced the acquisition of Amelia, an AI company that helps businesses create and deploy virtual agents to serve their customers and employees. The combined companies will serve hundreds of customers, and the deal will expand SoundHound's reach into other industries like healthcare, insurance, financial services, and more. SoundHound generated $13.5 million in revenue during the second quarter of 2024, a whopping 54% increase from the year-ago period. The strong result (combined with the acquisition of Amelia) prompted management to increase its full-year guidance for both 2024 and 2025. The company now expects to bring in $80 million this year, which would be a 74.3% increase from its 2023 result, followed by at least $150 million in 2025 (including $45 million from Amelia), which will represent accelerated growth of 87.5%. Plus, SoundHound ended Q2 with a record $723 million in bookings, which nearly doubled from the year-ago period. Bookings represent the company's order backlog, so its long-term revenue pipeline also looks very robust. However, SoundHound's bottom line is a concern because the company is still investing heavily in growth at the expense of profitability, and will probably continue doing so until it achieves scale. That resulted in a $37.3 million net loss during Q2, which was a 60% increase from the year-ago period. The company's non-GAAP (generally accepted accounting principles) net loss -- which strips out one-off and non-cash expenses like stock-based compensation -- was better, coming in at just $14.8 million, a slight improvement from $16 million in the year-ago quarter. SoundHound ended Q2 with $200 million in cash on its balance sheet, so it can afford to sustain losses for the foreseeable future. However, there is a risk the company will require a capital raise at some point in the future prior to achieving sustained profitability, and that typically dilutes existing investors. Based on SoundHound's trailing-12-month revenue of $55.4 million and market capitalization of $1.6 billion, its stock trades at a price-to-sales (P/S) ratio of 29.1. That makes it even more expensive than Nvidia, which trades at a P/S multiple of 27.3! Considering that Nvidia operates at the forefront of the AI industry and has a track record of success that spans decades, it would seem unreasonable for SoundHound stock to trade at a premium valuation. However, SoundHound's revenue growth is actually poised to outpace Nvidia's in 2025 (so long as management's guidance is accurate). Based on SoundHound's $80 million in forecast 2024 revenue, its stock trades at a forward P/S ratio of 20.1. Its P/S ratio falls even further to just 10.7 based on the company's forecast 2025 revenue. Therefore, investors willing to hold SoundHound stock for at least the next two years might be scooping up a bargain at the current price. The story looks even more promising over the longer term, because the company believes enterprise spending on AI will top $250 billion within the next three years. With all that said, I want to end with a very important point. SoundHound is still in the early stages of monetizing its AI products, and the journey won't always be smooth. So it might be best for investors to keep their position sizing small to mitigate the potential risks. After all, not even Nvidia has gone all in -- it's a $2.6 trillion company, so it probably won't sweat the $3.6 million loss if its investment in SoundHound stock doesn't work out.

SoundHound AI: High-Growth Contender Poised To Dominate The Voice AI Market

Editor's note: Seeking Alpha is proud to welcome Saira Quraishi as a new contributing analyst. You can become one too! Share your best investment idea by submitting your article for review to our editors. Get published, earn money, and unlock exclusive SA Premium access. Click here to find out more " SoundHound AI (NASDAQ:SOUN) is a transformative player in the AI-driven voice and conversational intelligence market. Over the last two years, the company's trailing revenue has skyrocketed from $20 million to $55 million, showcasing remarkable growth that, in my view, is only just beginning. SoundHound's debt-free balance sheet, strategic acquisitions, and impressive revenue growth make it one of the most attractive growth stocks in the AI landscape today. With a customer base across automotive and restaurant industries and strategic acquisitions will allow it to capture the growing demand for voice AI solutions. I believe that the company's huge backlog of long-term contracts is accelerating the revenue growth and strategic positioning in new verticals make it a compelling investment opportunity. The company's voice AI solutions are now integrated into major automotive brands including Stellantis vehicles, Hyundai, and also have penetrated the restaurant industry which constitute 25% of SoundHound's overall revenue. According to my research, SoundHound's voice AI technology is gaining traction not just because of its core functionality but also due to its integration with popular generative AI models like ChatGPT. SoundHound's recent acquisitions of Amelia, an enterprise conversational AI leader, and Allset, a restaurant ordering platform, signal the company's intent to broaden its market reach. These acquisitions are strategic as they position SoundHound to diversify its revenue streams and capitalize on opportunities in other industries such as finance, healthcare, and insurance. The company's management believes that this diversified approach will mitigate risk and offer new avenues for growth. However, these acquisitions come with a cost. The company's gross profit margins have been declining, dropping to 63% in the second quarter, down from previous levels. This margin contraction is largely attributed to integration costs and redundancies associated with recent acquisitions. In my opinion, this is just a temporary setback. As SoundHound optimizes its operations and extracts synergies from these acquisitions, margins are likely to improve and potentially will lead to a more robust and profitable business model by 2025. SoundHound AI is a leading innovator in the voice AI and conversational intelligence space, specializing in speech recognition and natural language processing technologies. Founded in 2005, SoundHound has spent nearly two decades developing voice-enabled AI solutions that power millions of interactions across automotive, restaurant, and various other industries. The company's proprietary voice AI technology is designed to enhance user experiences through smart, responsive, and intuitive voice interfaces, positioning SoundHound as a key player in the rapidly growing AI-driven ecosystem. With strategic partnerships, high-profile acquisitions and a strong financial foundation. SoundHound has demonstrated an impressive trajectory in revenue growth, nearly tripling its revenue over the past two years. The company recently reported Q2 2024 revenue of $13.5 million, marking a 54% increase from the previous year. This growth is driven by a combination of expanding contracts and successful acquisitions, putting SoundHound well ahead of its competitors in the conversational AI space. The company's gross margin has also been solid with non-GAAP gross margins reported at 67% shows SoundHound's ability to scale its operations efficiently. This margin expansion is mainly because of a significant backlog of long-term contracts that suggests that SoundHound's revenue growth is sustainable over the coming years. One of the most compelling aspects of SoundHound's strategy is its acquisition of Amelia, a leader in enterprise AI software. This acquisition will allow SoundHound to penetrate new verticals, including finance, insurance, and healthcare. I see this acquisition as a critical step in broadening SoundHound's market reach and accelerating its revenue growth. The integration of Amelia will also enhance SoundHound's ability to offer more comprehensive AI solutions, making it a go-to provider for businesses seeking to integrate conversational AI into their operations. The addition of high-profile clients from the automotive sector like Stellantis, Hyundai, and partnerships with leading QSR (Quick Service Restaurant) brands highlight the growing adoption of SoundHound's technology. SoundHound's backlog of $723 million in long-term contracts is a testament to the company's ability to secure multi-year commitments from large, well-established brands. This backlog is growing at an impressive rate, up from $339 million a year ago. This 113% YoY growth rate, which shows the increasing demand for SoundHound's AI solutions. The contracts in this backlog are not just placeholders, they represent actionable revenue streams that will be realized over the coming years. In my opinion, this backlog provides a strong foundation for future revenue growth and positions SoundHound as a stable investment in the volatile AI sector. While SoundHound is not yet profitable, there are clear signs of financial improvement. The company's adjusted net loss narrowed from $20 million in Q1 2024 to $15 million in Q2, indicating that SoundHound is moving in the right direction. Additionally, SoundHound has been proactive in strengthening its balance sheet with over $200 million in cash and prepaid $100 million in debt, saving $55 million in interest and fees. From my perspective, these actions reflect prudent financial management and suggest that the company is taking the necessary steps to reach profitability. The management has outlined a pathway to achieve operating margins comparable to other software companies, targeting 30% or higher relative to annual revenue over the long term. This forward-looking approach to margin improvement is encouraging for investors seeking long-term value. SoundHound's expanding presence in the automotive sector is a key growth driver. The company's voice AI technology is being integrated into vehicles from prominent brands such as Peugeot, Vauxhall, Opel, and Alfa Romeo, among others. Notably, SoundHound is set to roll out its voice assistant with generative AI capabilities across a leading U.S. electric vehicle manufacturer, marking a significant entry into the North American market. In the restaurant industry, SoundHound's AI solutions have been embraced by major chains like White Castle, Jersey Mike's, and Beef 'O' Brady's. The company's AI ordering systems are transforming the way these businesses operate, enhancing customer experience while driving operational efficiencies. I believe this broad adoption serves as a strong validation of SoundHound's technology and its potential to capture market share in other sectors. Given the current market cap of approximately $1.58 billion and SoundHound's expected revenue growth, I believe the stock is undervalued compared to the rest of stock in the tech sector. SoundHound's guidance suggests revenue could exceed $80 million by the end of 2024 and $150 million in 2025 driven by the Amelia acquisition and expanding market opportunities. If SoundHound can achieve these targets, its stock could easily justify a price closer to $15 per share over the next couple of years, representing an over 3x return from current levels. Despite the strong growth prospects, there are risks to consider. SoundHound is still unprofitable, and any delays in achieving profitability or integrating acquisitions could weigh on the stock. Additionally, competition from larger players like Google, Amazon, and Microsoft, which are also heavily investing in voice AI, could pose challenges. However, SoundHound's niche focus on automotive and restaurant applications provides a distinct competitive advantage that helps mitigate these risks. Given SoundHound AI's early-stage nature and robust growth, I use a Revenue Multiple approach, as this is the most appropriate method for high-growth tech companies that are not yet profitable. With the market cap of $1.58 billion, the company is slightly overvalued based on its current and projected revenue growth. SoundHound's current and forward-looking P/S ratios place it on the higher end compared to industry peers: With a current P/S ratio of approximately 19.73x based on 2024 projected revenue, SoundHound AI is trading at a higher premium to many of its industry peers. This premium reflects market expectations of continued high growth and successful execution of its backlog and strategic initiatives. Given the above multiples, SoundHound's current valuation implies high expectations for future performance: High Premium for Growth: The 19.73x P/S ratio for 2024 suggests that investors are pricing in not just current growth but also significant future execution, likely banking on the full conversion of its backlog and continued expansion into new markets. According to the metrics above, SoundHound AI is slightly overvalued, but it is mainly because the overall tech sector is much overvalued because of the AI Boom. I don't think the stock price will go below $4 because they have enough cash to burn for the next 6 quarters if the losses continue at the same pace, but that is less likely to happen. The company's losses are decreasing each quarter, and it is expected to reach profitability by early 2025, making the price range of $4.20 to $4.80 reasonable. Importantly, with a short float exceeding 23%, any continued positive momentum could lead to short covering, potentially driving the stock price higher. Yes, SoundHound AI is currently overvalued based on traditional revenue multiples relative to its peers, particularly in the short term. The market cap of $1.58 billion and a high P/S ratio of 19.73x (2024) place it significantly above average, suggesting that the market is pricing in a lot of future success today. Here's why this matters: While SoundHound's growth potentials are strong, investors should be aware that they are paying a premium that reflects high growth expectations and minimal tolerance for execution risk. For current and prospective investors, this means closely monitoring SoundHound's quarterly performance, particularly the realization of backlog into tangible revenue and progress towards profitability. Any deviation from high expectations could lead to downward pressure on the stock. SoundHound AI is not without risks, but the combination of its technological capabilities and increasing demand in the market makes it a high-reward play in the burgeoning AI space. For investors looking to capitalize on the next wave of AI innovation, SoundHound offers a unique opportunity to invest in a company that is shaping the future of voice and conversational intelligence. While SoundHound's growth potential is notable, investors must be aware of the risks. A key concern is the dilution of shareholders, as the company has increased its share count by over 30% in the past two years. Additionally, SoundHound remains unprofitable, and any further delays in its path to profitability could weigh heavily on its stock. With the Amelia acquisition not expected to be accretive until 2025, there is significant execution risk. Additionally, competition from larger players like Google, Amazon, and Microsoft, which are also heavily investing in AI and voice AI technologies, could pose challenges. However, SoundHound's niche focus on automotive and restaurant applications provides a distinct competitive advantage that helps mitigate these risks. SoundHound AI is a compelling investment opportunity for those willing to take on some risk for potentially outsized returns. I believe that SoundHound's unique focus on voice AI, its expanding market reach through strategic acquisitions, and its solid financial foundation position it well for future growth. While the stock may face short-term challenges as the company works toward profitability, the long-term outlook remains highly attractive. In my opinion, SoundHound represents a high-conviction buy. The company's robust financial position, strategic partnerships and accelerating revenue growth create a compelling case for significant upside. While there are risks, I believe SoundHound's unique market positioning and strong execution make it one of the best growth stocks in the AI space today. Investors should consider building a position in SoundHound, especially on any dips near the $4.20 support level. I am looking forward to the company's progress in expanding its contract backlog, new partnership announcements, and revenue growth metrics. If SoundHound continues on its current trajectory, I believe it has the potential to significantly outperform the market over the next 12 to 18 months and beyond.