Within the intricate realm of artificial intelligence (AI) investments, there exists a standout magnate: Nvidia. Yet, what many financial aficionados are unaware of is Nvidia’s own investment strategies. With a portfolio boasting investments of no less than $100 million, Nvidia is compelled to disclose such financial engagements to the eagle-eyed Securities and Exchange Commission (SEC) through the routine 13F filing, updated quarterly. Among the latest quintet of companies revealed in the disclosure, the one that has piqued interest the most is SoundHound AI (NASDAQ: SOUN).
SoundHound AI: A Symphony of Widely-Adopted Products
For Nvidia to throw its weight behind a specific AI entity speaks volumes, particularly when creators industry-wide hinge on Nvidia’s advanced chips. This endorsement suggests that Nvidia possesses insights into SoundHound’s capabilities that ordinary investors may lack.
SoundHound AI, as the label subtly suggests, specializes in blending audio with artificial intelligence. Its suite of products primarily targets the realms of dining establishments and automotive enterprises. Nevertheless, the tentacles of its audio-focused solutions are poised to delve into other sectors.
An exemplary use case within the automotive domain involves SoundHound’s integration of ChatGPT into Stellantis DS vehicles. This move promises drivers a notably enhanced digital assistant experience, with half of customary drivers expressing intent to harness its prowess.
On the gastronomic frontier, SoundHound recently unveiled a revitalized phone-ordering adventure in collaboration with Jersey Mike’s Subs. This fully mechanized setup can deftly manage multiple orders concurrently with pinpoint accuracy, thereby granting staff the freedom to attend to other responsibilities aside from order-taking.
This realm of automation is on an upward trajectory, as evidenced by a recent SoundHound study indicating that 80% of consumers envision such automated orders as the norm in the impending years.
The tapestry of SoundHound’s product dissemination is merely in its nascent stages, and with the current fervor surrounding AI capabilities, widespread adoption seems imminent.
SoundHound AI’s Stocks: A Pricy Proposition
SoundHound, although a relatively diminutive entity, posted revenues of a mere $17 million in the final quarter of 2023, reflecting an 80% surge from the corresponding period in the prior year. However, the company harbors a substantial backlog, with $661 million still earmarked for sealed deals. Should SoundHound honor these commitments, a remarkable growth trajectory beckons, which could elucidate Nvidia’s investment decision.
The conundrum with cash-incinerating entities like SoundHound lies in the race against time to attain profitability. While 2023 concluded with SoundHound amassing nearly $100 million in cash, it bled over $68 million in operational losses, necessitating loans and fresh equity injections for sustenance. Fortuitously, the management’s prudent cash handling and margin enhancements paint a hopeful picture. SoundHound’s net loss per share showed a marked improvement, plummeting from $0.15 to $0.07. Given SoundHound’s triumphs and the heft of its backlog, securing additional capital should pose no significant hurdles.
Thus far, SoundHound appears to don the garb of an enticing investment avenue. Nonetheless, there lurks a critical consideration: valuation.
Acquiring the right stock at an inopportune price point could precipitate calamity. SoundHound AI was attractively priced at the year’s commencement. However, following a robust quarterly performance and the buzz surrounding Nvidia’s investment, the stock’s valuation has skyrocketed.
The SoundHound stock presently commands an exorbitant tag, hovering around 38 times its sales figure, a striking contrast when juxtaposed against peer AI software equities trading within the 10 to 20 times sales bracket. Yet, if SoundHound manages to scale its quarterly revenue from $17 million to $100 million over the next few years, the ongoing stock price could manifest as a prudent acquisition.
Ultimately, the litmus test lies in its future execution, an aspect currently shrouded in uncertainty. Thus, what’s the prudent move for prospective investors?
If one harbors interest in the company and perceives a robust chance of success, a modest position allocation (not surpassing 1% of the entire portfolio) could be a judicious step. By adopting this strategy, any potential failure would exert minimal impact on the portfolio’s overall health. However, in the event of triumph, a robust return still stands achievable.
SoundHound boasts a sterling product catalog and a palpable sense of momentum, factors already factored into the stock price. Opting for investment at present necessitates a profound conviction in SoundHound, given its lofty valuation. Hence, it might be advisable to await the frenzy triggered by Nvidia’s investment to simmer down marginally before initiating any positions in SoundHound.
Should one allocate $1,000 toward SoundHound AI presently?
Prior to diving into SoundHound AI stock, contemplation bears relevance:
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Keithen Drury currently holds no positions in any of the mentioned stocks. The Motley Fool has stakes in and commends Nvidia. Stellantis gains a nod of recommendation from The Motley Fool. The Motley Fool abides by a robust disclosure policy.
The viewpoints and opinions articulated herein are an exclusive prerogative of the author and don’t necessarily mirror those of Nasdaq, Inc.
