SoundHound AI: A Rising Star in the AI Industry or a Risky Investment?

Is It Too Late to Buy SoundHound AI Stock? | The Motley Fool

I've been pounding the table about this artificial intelligence (AI) innovator for nearly two years now. 2024 has seen its ups and downs, but I still see a bright long-term future for this innovative technology expert. SoundHound AI was a very small company with huge dreams back then. Its customer list included nearly two dozen automakers and a long list of consumer electronics makers, all aiming to build its AI-powered voice controls into their own products. But annual revenues stopped at $31.1 million and many investors wrote SoundHound AI off as a speculative start-up without a real business plan. I didn't see SoundHound AI that way. In my eyes, it was a mature company with two decades of operating history, though it only recently decided to raise capital via a stock market entrance with a special purpose acquisition company (SPAC) and dive head-first into an aggressive expansion strategy. The tony revenue stream was backed by a $332 million backlog of long-term contracts. Now, trailing sales have grown to $55.5 million while that order backlog soared to $682 million. The company is not only adding more names to its client list but also making a serious push into the food service market and starting to collect some revenue from that beefy order book. For example, auto giant Stellantis (STLA 0.80%) now includes SoundHound AI's voice controls in new vehicles across Japan and Europe. The brand list includes household names like Alfa Romeo and Citroën, and the Stellantis version of Houndify also includes OpenAI's ChatGPT chatbot. It's still early, but Stellantis is leaning into its voice controls on a global level. A North American launch should come up fairly soon, and I expect that announcement to light fresh fires under SoundHound AI's stock. The food service business is younger. Yet, SoundHound AI's customer roll in this sector already includes well-known chains such as Applebees, Chipotle Mexican Grill, and Five Guys. The next time you place an order through their phone menus or drive-through windows, you may very well be talking to SoundHound AI's software bots. SoundHound AI's growth story is just getting started. The company has gone on a modest buying spree over the last year, acquiring a couple of fellow voice interpretation and AI analytics specialists, some of which brought in healthy lists of existing restaurant customers. And I really like this company's clear vision of a profitable future. Here's how CEO Keyvan Mohajer explained it in the latest earnings call: "We own our tech. We have big data from real interactions and nearly 20 years of experience. This is why we are winning," Mohajer said. "We have three pillars: royalties from voice-enabled products, subscription from voice-enabled services, and the third pillar is monetization from connecting those services to products. As we increase the notable names that we sign every quarter -- and this quarter is no different -- we get one step closer to mobilizing this third pillar." The first two pillars of business growth are already rising, as SoundHound AI collects actual revenues from its voice control products and services in this early stage. I can't wait to see Mohajer build "the voice commerce ecosystem of the future," which should accelerate both the contract backlog and direct revenue streams. That's why SoundHound AI looks affordable today, despite a lofty price-to-sales valuation ratio and negative bottom-line earnings. The shares you buy today are a bet on continued business growth, fundamentally connected to that meaty order backlog. It's not exactly fair to divide SoundHound AI's market cap by the backlog in order to estimate the company's contract-based value, since it will take seven years to collect the full value of its average contract. A bird in the hand is worth a whole flock of unseen geese and so on. Still, that ratio works out to just 2.5 times the backlog or 17 times the average annual sales across the seven-year contract period. That's still quite affordable next to fellow AI experts like Nvidia and Palantir, whose price-to-sales ratios dwell in the 30x range. So no, I don't think it's too late to buy SoundHound AI stock. The company is worth just $1.7 billion today, and I see a multibillion-dollar AI empire growing out of this seedling in the long run. If anything, it's high time to start building a SoundHound AI position before the stock takes off.

Where Will SoundHound AI Stock Be in 3 Years? | The Motley Fool

The voice AI solutions provider is gaining traction in a market that's expected to become huge in the long run. SoundHound AI (SOUN 0.84%) stock is on a roller-coaster ride so far in 2024, rising tremendously in the first three months to hit a 52-week high in mid-March, but has since lost 45% of its value. SoundHound specializes in providing voice artificial intelligence (AI) solutions for companies and it has been delivering outstanding growth quarter after quarter. It has also taken steps lately to strengthen its position in the lucrative market for voice AI solutions. So the stock price crash seems a tad surprising at first. One reason investors may have pressed the panic button is because of the stock's rich valuation. The stock was valued at well over 40 times sales earlier this year. Moreover, it continues to trade at a rich 24 times sales even after its recent pullback (see chart below). Given the strong growth and the rich valuation, should investors looking to add a growth stock to their portfolios right now? What can investors anticipate over the next three years for SoundHound stock? Let's find out. SoundHound AI is a relatively small company; its revenue in the first six months of 2024 stands at just $25 million. Its adjusted loss per share during this period was $0.23 per share, down slightly from the year-ago period's reading of $0.25 per share. The good part is that SoundHound management expects the company to finish the year with at least $80 million in revenue, indicating growth is set to pick up in the second half. More importantly, management expects 2025 revenue to jump to at least $150 million, which would be an increase of 87%. SoundHound finished 2023 with revenue of $46 million, which was a jump of 47% from the previous year. SoundHound AI's growth is accelerating significantly, indicating that its products are gaining solid traction in the voice AI market. SoundHound AI has been gradually building a solid customer base spread across the automotive and hospitality end markets. Management reports that six car brands of automaker Stellantis use the company's generative AI voice assistant. Meanwhile, an (unnamed) electric vehicle (EV) manufacturer in the U.S. will soon deploy the company's generative AI voice assistants across its entire fleet. Stellantis is also set to introduce SoundHound's voice AI solutions in cars for the Latin American market, while a European EV manufacturer has expanded its existing relationship with SoundHound. Elsewhere, multiple quick-service restaurants use SoundHound's voice ordering systems. SoundHound is looking to shore up its position in the customer service space further with the $80 acquisition of Amelia, an enterprise AI software provider. SoundHound management points out that the combined company will now serve the "top 15 global banks, and Fortune 500 organizations, with the combined company spanning nearly 200 marquee customers." SoundHound did the right thing by making this move because the deployment of AI in the market for voice assistants is forecast to increase at a compound annual growth rate of 28% through 2033, generating an annual revenue of $32 billion at the end of that period. As such, there is a good chance that SoundHound's impressive revenue growth will continue beyond 2025 as well. As already noted, SoundHound expects its revenue to exceed $150 million in 2025. Analysts, meanwhile, have a slightly higher revenue expectation for next year. Based on SoundHound's 2023 revenue of $46 million, its top line is on track to increase by 78% this year, followed by a projected 85% jump in 2025. Assuming the company maintains a top-line growth rate of even 50% in 2026, its revenue could hit $228 million after three years. Part of why SoundHound could indeed hit that mark involves management claims that the company has a revenue pipeline of $723 million. The company's cumulative subscriptions and bookings backlog doubled on a year-over-year basis in the previous quarter. This metric refers to SoundHound's committed customer contracts and the potential revenue it could derive from its subscription customers. What's worth noting is that SoundHound's cumulative subscriptions and bookings backlog exceeds its combined revenue forecast for 2024 and 2025, and it is also higher than the estimated 2026 revenue referenced in the discussion above. So, if SoundHound generates $228 million in revenue in 2026 and trades at 12 times sales at that time (half of its current sales multiple), its market cap could jump to $2.74 billion. That would be a 57% jump from current levels. These projections indicate that this AI stock could deliver healthy gains over the next three years even if it trades at a significant discount to its current sales multiple. Investors with an appetite for risk might want to consider buying SoundHound following the stock's recent decline, as its fortunes on the market could turn around in the future thanks to its impressive growth and huge backlog.

Nvidia Just Made a 147% Profit Betting on This AI Stock | The Motley Fool

It's difficult to make a 147% return in a matter of months, but that's what Nvidia (NVDA 0.22%) achieved with a multimillion-dollar investment this year. The investment was one of many AI companies Nvidia decided to back. All were companies that it has worked with in the past, so it presumably knows them quite well. Despite the huge profit, Nvidia appears to be holding on to its fairly recent stock purchases. Investors looking for maximum growth should consider jumping in. Less than a year ago, Nvidia plowed $3.7 million into SoundHound AI (NASDAQ: SOUN) stock. Shares have risen by 147% since then, but there's reason to believe they could rise another 10 times in value over the long term. But before you invest, there are a few things you need to consider. At its core, SoundHound AI is a company focused on bringing AI to everything sound-related. From voice assistants to drive-thru ordering, anytime you chat with a speaker, SoundHound AI wants its technology to be there. With more than a decade in operation, the company has amassed more than 200 patents and an impressive customer list that has continued to grow. In 2022, for example, it signed a seven-year contract with Hyundai to power its voice-driven AI capabilities. Drivers will be able to chat with their vehicles not only to send messages, get directions, or toggle the air conditioning but also to check in on maintenance issues and discuss how the vehicle has been performing. It's impressive stuff. Over the next few years, that giant user manual sold with new cars could be replaced with a simple conversation -- one conducted directly between you and the vehicle. SoundHound AI has signed several vehicle manufacturers as customers. But it's also in other industries, including restaurants and fast-food chains. Applebee's and White Castle, for instance, are piloting the technology to improve order times and reduce overhead costs. This is perhaps one of the most popular ways we will all be interacting with AI technologies in the near future. Despite its sizable tech portfolio, growing customer base, and sizable end markets -- not to mention Nvidia's backing -- SoundHound's market cap remains just under $2 billion. To rise 1,000% in value, the company would need to reach a valuation of around $20 billion. That's not much of a stretch in the volatile AI industry, which could be one of the largest growth opportunities in a generation. Shares trade at a price of 22 times sales, but over the last two years, revenue has grown by more than 150%. If it can replicate these growth rates, shares would trade between 5 and 6 times 2026 revenue. That's a much more palatable valuation, although it will take some patience and execution to get there. Clearly, SoundHound AI's end markets alone would support a $20 billion valuation. According to management, the voice AI market has a total addressable market size of at least $140 billion. SoundHound AI's unique technology can be used across a variety of industries, and its early head start bodes well for its ability to capture a growing share of an otherwise growing opportunity. But there's a reason SoundHound still trades at a paltry $1.7 billion market cap. The company remains unprofitable, meaning it continually needs to seek financing in order to stay solvent. This limits its ability to invest in research and development, which is perhaps its most valuable use of funds long term. Research and development spending last year was only around $56 million -- a 30% reduction in its peak spending levels in 2023. Big tech companies, including Apple and Alphabet, are investing billions of dollars in this space. Long-term competition will be intense, and it's not clear whether SoundHound AI has the capital to survive, let alone thrive. If you're looking for a speculative growth stock with huge long-term potential, SoundHound AI could be for you. Nvidia's backing is certainly a plus. But volatility should remain high, and the potential downside is sizable as well. This is truly a boom or bust investment option for risk-tolerant investors only.