SoundHound AI: A 618% Surge Raises Questions About Future Growth

If you put $10,000 into SoundHound AI (NASDAQ: SOUN) stock one year ago, you have $61,800 today. That’s an impressive return of 618%. The company has become a leading player in the artificial intelligence (AI) sector, focusing on speech and audio-related AI solutions.

However, previous success does not guarantee future performance. Let’s examine SoundHound AI’s fundamentals to see if its growth trend can continue.

Identifying a Business Opportunity

Currently, much of the growth in AI centers on hardware, with companies like Nvidia providing essential equipment for running AI algorithms. Monetizing software remains challenging, as it is often in an early development phase. Nevertheless, SoundHound is actively pursuing innovation in this space.

Since its inception in 2005 with the music recognition platform Midomi, the company has been a pioneer in sound and audio technology. It later expanded into developing speech-enabled virtual assistants for vehicles. Recognizing the overlap between this technology and generative AI, similar to that used in popular chatbots like ChatGPT, has positioned SoundHound strategically.

By integrating speech recognition with large language models, SoundHound enhances human-machine interactions. Potential applications include humanoid robots, which could soon engage in meaningful conversations. However, the company is focusing on immediate use cases such as restaurant drive-thrus, customer service, and automotive assistants.

Image source: Getty Images.

Rapid Revenue Growth Accompanied by Rising Losses

SoundHound’s revenue soared by 89% year over year to $25.1 million in the third quarter as demand for its voice AI solutions increased. The company employs a software-as-a-service model, allowing users to access its technology for a regular fee, fostering potential for stable income.

Among its latest clients are Mexican airline Grupo Aeroméxico, French financial firm BNP Paribas, and American healthcare provider Aveanna Healthcare Holdings. The variety of industries embracing SoundHound’s software underscores its adaptability. The company is also expanding through acquisitions like the $80 million purchase of Amelia AI, an AI agent specializing in backend business functions.

This merger is expected to enhance SoundHound’s client base and potentially contribute an additional $45 million to its projected revenue of $150 million in 2025.

Despite this growth, the company recorded significant losses, with operating losses increasing 132% year over year to $33.7 million in the third quarter. While such losses are typical for growth-oriented companies, SoundHound currently lacks a clear plan for profitability, leading to concerns about future financial stability.

SoundHound’s Prospects for the Next Year

In order to thrive long-term, SoundHound must scale its operations and establish a sustainable competitive advantage. This challenge is notable as speech recognition technology is not new and is already integrated into many smartphones. Other companies could easily adopt and enhance this technology with generative AI capabilities.

A year may not be sufficient for SoundHound to build a competitive edge or achieve profitability. This puts investors in a speculative position, as the stock may struggle to maintain its recent upward momentum.

Nevertheless, partnerships with major automotive manufacturers like Stellantis and Hyundai Motor indicate that SoundHound’s technology is making significant strides. Additionally, the company has garnered support from Nvidia, which purchased approximately $3.7 million in shares late last year. While the outlook remains positive, potential investors may choose to wait for a clearer picture of SoundHound’s financial health before engaging with the stock.

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*Stock Advisor returns as of December 9, 2024

Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Stellantis. 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.