Is SoundHound AI a Smart Investment or Just a Trend?

SoundHound AI (NASDAQ: SOUN) is making waves in the booming artificial intelligence (AI) sector with its innovative conversational AI platform. Its technology enables various applications, from voice ordering systems at Chipotle to voice commands in vehicles made by Stellantis.

Currently, SoundHound works with over 200 companies, and its rapid growth has caught the attention of investors, resulting in a staggering 500% surge in the stock price over the past year (as of this writing).

With such impressive gains, potential investors may be wondering if now is the right time to invest in SoundHound AI. Let’s analyze the situation further.

Image source: Getty Images.

Impressive Growth Highlights SoundHound’s Potential

SoundHound’s growth story is compelling, particularly given its recent financial results for the third quarter ending on September 30. The company reported a whopping 89% increase in sales, reaching $25.1 million. Looking ahead, management has set a revenue target of $165 million for 2025, almost double the predicted sales of $83.5 million for 2024.

Further enhancing its appeal, SoundHound has diversified its customer base significantly. Previously, 90% of its revenue came from the automotive sector. Now, it earns revenue from a more balanced mix of industries including restaurants, financial services, healthcare, and insurance, with contributions ranging from 5% to 25% from each.

Key Considerations for Investors

Despite SoundHound’s remarkable growth and diversification, investors should be aware that the company is currently unprofitable. In the latest quarter, SoundHound posted a non-GAAP net loss of $0.04 per share, an improvement from a $0.06 loss a year earlier.

It’s common for high-growth companies to operate at a loss initially, but analysts project that SoundHound might report a loss of $0.24 per share for 2024, with modest recovery to a loss of $0.17 in 2025.

Additionally, SoundHound’s stock is viewed as pricey with a price-to-sales ratio of 64.8. This stands in stark contrast to the S&P 500‘s (SNPINDEX: ^GSPC) ratio of just 3.1, raising concerns about the stock’s current valuation.

Conclusion: Caution Advised for Potential Investors

Given the current valuation and high price tag of SoundHound’s stock, it may be prudent to hold off on purchasing shares at this time. While there is potential for growth, some of the recent stock price gains may stem from overall excitement in the AI sector.

For those contemplating an investment in SoundHound, waiting for a dip in the stock price before buying might be wise. If you decide to invest now, consider limiting your investment to ensure it doesn’t dominate your portfolio.

Should You Invest $1,000 in SoundHound AI Right Now?

Before making any decisions about buying SoundHound stock, think about this:

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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, Stellantis, and recommends the following options: short December 2024 $54 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.