Published on November 17, 2023, 2:57 am

Uncovering Soundhound Ai: The Hidden Gem In The Artificial Intelligence Market

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One area of investment that is gaining significant attention is artificial intelligence (AI). While some AI stocks have been heavily hyped, there are others that are flying under the radar but have great potential. SoundHound AI (SOUN -5.38%) falls into the latter category.

Although SoundHound AI has been around since 2005, its technology is just starting to gain traction and show tremendous growth. Trading at just over $2 per share currently, Wall Street analysts have a consensus price target of $5 for the stock, indicating a potential upside of 130%.

SoundHound AI specializes in analyzing audio using AI technology. Its applications range from restaurant ordering systems to automotive digital assistants and smart homes. Recently, SoundHound partnered with White Castle to modernize their drive-thru ordering process. The results were impressive: orders processed in under 60 seconds with a 90% completion rate. This success paves the way for potential partnerships with larger fast-food chains.

The key factor driving excitement among investors is the increasing adoption of AI by businesses across various industries. SoundHound AI is well-positioned to establish itself as a leading player in this emerging market.

Despite being a relatively small company with a market cap of $430 million, SoundHound AI’s rapid growth suggests it may not remain small for long. In Q3 alone, its revenue grew by an impressive 52% YoY to reach $13.3 million. Management expects even better results for Q4 with guidance for $18 million in sales at the midpoint. This projection indicates a potential doubling of revenue within a year.

With Wall Street analysts forecasting 62% sales growth for 2024, the company’s future prospects appear bright. However, it’s important to note that SoundHound AI is currently in a growth-at-all-costs phase and is not profitable. In Q3, it used nearly $21 million for its operating activities. The company has approximately $110 million in cash reserves, providing it with about a year before profitability must be achieved or additional funding secured.

While raising more funds shouldn’t be difficult considering SoundHound AI’s strong business performance, investors should keep in mind the potential dilution of shares if the company chooses to offer more shares as a financing solution. This could harm existing shareholders and impact overall returns.

Nevertheless, SoundHound AI’s stock is reasonably priced at just under 13 times sales considering its growth potential. Investors may consider allocating a small portion of their portfolio to this opportunity, given the practical application of AI in SoundHound’s products.

Analysts expect the stock to potentially deliver returns of around 130% over the next year, primarily driven by securing large customer contracts. However, due to the company’s reliance on a few contracts, there is also a risk that things may not work out as anticipated. Properly sizing your investment position is crucial when investing in companies like SoundHound AI.

In conclusion, while there are risks associated with investing in SoundHound AI, the company shows promising growth potential in the AI market. With sound products and successful partnerships already established, it may be worth considering adding this stock to your portfolio for long-term growth opportunities.

Disclaimer: The author of this article has no position in any stocks mentioned. The Motley Fool also has no position in any stocks mentioned and maintains a disclosure policy.

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