SoundHound AI(NASDAQ: SOUN) 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).
Data by YCharts.
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 justifies its expensive valuation with impressive growth
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.
How much upside can SoundHound stock deliver over the next three years?
As already noted, SoundHound expects its revenue to exceed $150 million in 2025. Analysts, meanwhile, have a slightly higher revenue expectation for next year.
Data by YCharts.
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.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.
