Shares of SoundHound AI(NASDAQ: SOUN) more than doubled over the past year as investors sought high-growth companies in the artificial intelligence (AI) segment. The company's focus on building some of the best voice assistant tools for large enterprises and its acquisitions have boosted SoundHound's sales and added to the narrative that the company could continue its winning streak.
But can SoundHound keep up the momentum? Here's what's going right with the company, what investors should look out for, and where this AI-powered voice assistant company could be three years from now.
What's going right with SoundHound
SoundHound has 20 years of experience in voice recognition software, and the company continues attracting large enterprises looking for the best AI-powered voice tech.
For example, SoundHound's platform is used by Chipotle Mexican Grill, Qualcomm, and Stellantis' automotive brands for speech recognition for restaurants and in-vehicle voice assistants.
There are plenty of AI companies trying to ride the AI hype, but SoundHound is generating significant revenue from its platform. Sales rose 54% in the fiscal second quarter (ended Aug. 8) to $13.5 million, and management says revenue for the full year will be up 74% to more than $80 million.
The company's voice recognition and conversational speech awareness tech has caught the attention of Nvidia, which disclosed earlier this year that it has invested about $3.7 million in SoundHound. While that's a relatively small stake for such a large tech company as Nvidia, the fact that the AI juggernaut uses SoundHound for the voice assistant tech in its Nvidia Drive driver-assistance vehicle system is an indicator of how SoundHound's platform is viewed.
To expand its AI voice platform, SoundHound recently bought Amelia for $80 million, which helps SoundHound move further into conversational AI services for healthcare, insurance, financial services, and retail. The move is a bet on conversational AI disrupting customer service operations.
What to look out for with SoundHound
As with any stock, there are a few things potential investors should be aware of with SoundHound. For one, the company isn't profitable.
SoundHound's generally accepted accounting principles (GAAP) net loss in the second quarter was $37.3 million, which was larger than its loss of $27.3 million in the year-ago quarter. It's not unusual for high-growth companies to operate at a loss, but investors will want to see those losses begin to narrow. The good news is that some analysts estimate this could happen soon, with estimated loss per share of $0.35 in 2024 narrowing to a loss of $0.21 in 2025.
Image source: Getty Images.
It's also important to point out that its stock isn't exactly cheap. SoundHound's 114% gains over the past year have pushed up its valuation, with the company's shares having a price-to-sales ratio of 24 right now.
Where will SoundHound be in three years?
SoundHound is clearly on a growth trajectory, and the company could continue to benefit as companies increase spending in the generative AI market. SoundHound's management believes it can tap into AI enterprise spending, which will reach an estimated $175 billion to $250 billion by 2027.
SoundHound has made strategic moves to help capture more of this market, particularly with its purchase of Amelia. Management believes total revenue will be $150 million by the end of 2025 and that $45 million of that will come from Amelia alone.
With its solid customer base, strong revenue growth, and an acquisition that's propelling sales further, SoundHound could continue outpacing the market over the next three years. Just be ready for some volatility from the stock and keep a close eye on whether or not the company's losses narrow over the next year or so.
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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill, Nvidia, and Qualcomm. The Motley Fool recommends Stellantis and recommends the following options: short September 2024 $52 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
