The recent revelation of Nvidia (NASDAQ: NVDA) acquiring a 0.6% share in SoundHound AI (NASDAQ: SOUN) has accelerated the spotlight on the latter’s meteoric rise in the stock market. Nvidia’s strategic investment, just shy of $3.7 million, underscored its interest in the realm of artificial intelligence (AI), marking one of several notable tech investments made by the chip giant in the fourth quarter of 2023.
Delving deeper into SoundHound AI’s offerings and trajectory, it prompts the question: what unique melody does this company bring to the AI landscape, and is it a harmonious investment opportunity for discerning stakeholders?
Mastering the Art of Voice AI
Prior to Nvidia’s investment endorsement, SoundHound AI operated somewhat under the radar. Nevertheless, the company’s forte lies in cultivating partnerships with major automobile manufacturers, integrating its technology to enhance voice assistant capabilities in vehicles. Houndify, the company’s platform, facilitates seamless interactions between users and voice assistants in devices such as automobiles.
Houndify’s prowess shines through two core mechanisms. Through speech-to-meaning technology, it interprets and processes speech in real-time, grasping the gist of conversations as they unfold. Deep-meaning-understanding technology then comes into play to decipher user intents and tackle intricate queries.
Imagine a voice assistant recommending hotels based on a diverse array of criteria like location, budget, amenities, and ratings—a testament to SoundHound AI’s sophisticated AI technology at work.
Image source: Getty Images.
Gaining Traction in Automotive and Quick-Service Restaurant Sectors
SoundHound AI has achieved significant inroads in the automotive domain, boasting partnerships with over 20 automotive stalwarts like Honda, Jeep, Hyundai, Fiat, Chrysler, and RAM. Noteworthy wins include securing contracts with a prominent U.S.-based electric vehicle (EV) manufacturer and a major automaker that could substantially boost its production volumes up to 2037.
The company’s footprint extends to the quick-service restaurant sphere, where its voice assistant solution streamlines phone orders, freeing up staff to engage with customers. Additionally, its offerings cater to drive-thrus and kiosks, catering to the evolving needs of the food service industry.
Key collaborations with restaurant-centric fintech entities like Toast and Olo, alongside partnerships with quick-service chains including White Castle and Jersey Mike’s, have fortified SoundHound AI’s market presence.
Reveling in a 47% revenue surge to $45.9 million in 2023, SoundHound AI charts an ambitious growth trajectory for 2024, forecasting revenue between $63 million and $77 million—marking a robust 53% upswing at the midpoint. Anticipating revenue to surpass $100 million by 2025, the company’s cumulative subscriptions and bookings backlog, totaling $661 million, alludes to substantial revenue potential
With an average contractual lifespan exceeding six years, SoundHound AI’s contracted backlog spells out a revenue road map, with most earnings expected before 2031, albeit some extending beyond.
A Pensive Leap into Speculative Investment
Nvidia’s dalliance with SoundHound AI underscores the company’s meteoric ascension and robust revenue backlog. The potential cross-industry applications of SoundHound AI’s technology portend accelerated growth.
A recent partnership announcement saw SoundHound AI collaborating with Nvidia to unveil on-chip voice AI, untethered by internet connectivity, leveraging Nvidia’s DRIVE platform. This collaboration heralds seamless access to SoundHound AI’s Vehicle Intelligence suite, enabling users to field automotive-specific queries and general inquiries sans online connectivity.
SOUN PS Ratio (Forward) data by YCharts
However, SoundHound’s stock, trading at an exorbitant 26x price-to-sales ratio and currently mired in unprofitability, signals a speculative phase. The evolving landscape of AI technology injects an element of unpredictability—what’s revolutionary today may well become commonplace tomorrow.
While its aggregate backlog dazzles, translating to approximately $100 million in annualized revenue over contract durations, SoundHound AI must traverse a considerable distance before aligning with its current valuation.
Opining on investment avenues, prudence dictates a cautious stance. Should investors mirror Nvidia’s traverse into SoundHound AI, a judicious approach to position sizing is advisable, mirroring the cautious regard warranted for Nvidia itself.
Before plunging into SoundHound AI stock, an introspective evaluation is requisite:
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Geoffrey Seiler has vested interests in Toast. The Motley Fool holds stakes in and vouches for Nvidia, Olo, and Toast. Esteeming Stellantis, The Motley Fool espouses a stringent disclosure policy.
The perspectives expressed herein, articulated by the author, represent personal viewpoints and not Nasdaq, Inc.’s overarching stance.
