In February, Nvidia (NASDAQ: NVDA) made headlines with its first-ever 13-F filing, revealing strategic investments in a selection of companies operating in the booming artificial intelligence (AI) sector. These investments reflect Nvidia’s intent to broaden its reach beyond its core semiconductor business into promising AI technologies. One notable acquisition was 1.7 million shares of SoundHound AI (NASDAQ: SOUN), initially valued at $3.6 million. As of now, SoundHound’s stock is trading around $4.50, boosting Nvidia’s stake to approximately $7.8 million—a remarkable 116% increase in just under a year.
Specializing in conversational AI, SoundHound is making waves with innovative solutions for various industries, including hospitality, automotive, and food service. The company’s AI algorithms excel at processing voice inputs, enabling businesses to streamline operations and enhance customer engagement.
Restaurants are already reaping the benefits of SoundHound’s groundbreaking AI, utilizing its platform to manage customer orders both in-store and via drive-thru, significantly lessening the workload on staff. Popular chains like Beef ‘O’ Brady’s have adopted this technology nationwide, allowing franchisees the option to implement it as well. SoundHound also equips restaurant teams with specialized software, tailored for each location, delivering essential information on menus and policies. High-profile clients, including Chipotle, Krispy Kreme, and Five Guys, further testament to SoundHound’s growing impact.
In the automotive realm, SoundHound’s Chat AI is integrated into six Stellantis brands, allowing drivers to access vital information simply by asking. Additionally, the company’s AI Vehicle Intelligence product taps into vehicle manuals, providing instant advice on car features.
Recently, the company expanded its capabilities through the acquisition of Amelia, an AI firm dedicated to creating virtual agents for enhanced customer service across several sectors, including healthcare and financial services.
SoundHound’s Exponential Growth
SoundHound reported a staggering revenue of $13.5 million for Q2 2024, marking an extraordinary 54% year-over-year increase. This impressive performance allowed the management team to elevate their revenue guidance for the years 2024 and 2025. Projected earnings are anticipated to reach $80 million this year, reflecting a 74.3% increase from the prior year, with an expected rise to at least $150 million in 2025.
Moreover, the company concluded Q2 with a historic $723 million in bookings, nearly doubling from the prior year’s figures. Bookings represent the value of orders yet to be fulfilled, underscoring SoundHound’s strong long-term revenue outlook. However, potential investors should be aware of the company’s struggling bottom line; the net loss of $37.3 million for Q2 represents a substantial increase from last year’s figures as SoundHound invests heavily in growth, seeking to achieve scale. Though the company concluded the quarter with $200 million in cash—sufficient to sustain temporary losses—it may face the need for external funding in the future, which could dilute shareholder equity.
Evaluating Investment Potential
Currently, SoundHound’s stock trades at a price-to-sales (P/S) ratio of 29.1 based on trailing twelve-month revenue of $55.4 million and a market cap of $1.6 billion, outpacing even Nvidia’s P/S ratio of 27.3. Given Nvidia’s established reputation and decades-long success in the AI landscape, SoundHound’s valuation may appear inflated. However, analysts suggest that SoundHound’s revenue growth is poised to outstrip Nvidia’s by 2025, as indicated by the projected $80 million in revenue for 2024, which results in a more favorable forward P/S ratio of 20.1. This figure falls further to 10.7 when considering anticipated 2025 earnings.
For investors with a long-term vision, SoundHound could represent a unique opportunity to acquire stock at an appealing price, particularly with the imminent surge in enterprise AI spending, projected to exceed $250 billion in the coming years.
It’s crucial to recognize that SoundHound is still navigating the complexities of monetizing its innovative AI offerings, and the path forward may present challenges. Thus, it’s advisable for potential investors to manage their investments carefully, especially given that even a titan like Nvidia has taken a tempered approach with its investment in SoundHound.
SoundHound AI: A Balanced Consideration
Before diving into stocks like SoundHound AI, it’s wise to conduct thorough research. Despite its promising outlook, it didn’t make the cut for the latest list of top investment picks by The Motley Fool Stock Advisor team, which includes ten high-potential stocks. Their past recommendations have included remarkable successes—in 2005, an investor who commissioned $1,000 in a recommended stock saw it soar to a staggering $630,099 in value!
In conclusion, those considering SoundHound should weigh the risks and rewards diligently, as the potential for high returns exists against the backdrop of significant uncertainties in a rapidly evolving industry.