Investing in Voice Technology: SoundHound AI as a Potential Growth Stock

With many investors seeking opportunities in the booming artificial intelligence sector, how do you choose the right growth stock?

Focus on a company’s long-term opportunities, recent growth, and assess the associated risks carefully.

One stock that stands out for a $500 investment is SoundHound AI (NASDAQ: SOUN). Here’s an overview of the company.

Understanding SoundHound AI

SoundHound AI has been at the forefront of voice recognition technology long before the surge in interest surrounding AI. With over 20 years in the industry, the company specializes in helping businesses enhance customer interactions through conversational AI in sectors like restaurants, automotive, smart devices, hospitality, and customer service.

Image source: Getty Images.

For example, restaurants can utilize SoundHound’s technology to handle reservations, and customers can place orders via phone or drive-thru. Furthermore, car owners can easily operate their in-car systems hands-free. Major companies, such as Qualcomm, Chipotle Mexican Grill, and several brands under Stellantis have already adopted SoundHound AI’s speech recognition tools.

A vote of confidence in SoundHound AI’s capabilities is reflected by Nvidia, which invested in the company this year and employs its voice assistant software in the Nvidia Drive technology that aids drivers.

Beyond its established markets, SoundHound AI has made significant strides into new sectors. The company’s $80 million acquisition of Amelia expands its conversational AI offerings into insurance, finance, healthcare, and retail.

Analyzing Opportunities and Risks for SoundHound AI

In the past year, SoundHound AI’s stock has surged 196% as investor enthusiasm for the company’s future has grown.

This optimism was partly fueled by the second-quarter results, which saw sales leap by 54% to $13.5 million. Following this performance and the Amelia deal, SoundHound AI’s management projects full-year sales could hit $80 million, marking a 74% increase from 2023.

Leadership anticipates sales could grow to $150 million by the end of 2025, which is over three times the revenue expected for 2023. The company’s growth potential appears promising, as McKinsey forecasts generative AI spending could range from $175 billion to $250 billion by 2027.

However, potential investors should remain cautious. The tech sector is highly competitive, with numerous conversational AI players vying for market share. More importantly, SoundHound AI has yet to achieve profitability.

In the second quarter, SoundHound AI reported a GAAP net loss of $37.3 million, up from a loss of $27.3 million in the same quarter last year. Investors will want to see a reduction in losses soon. Analysts predict the loss per share will narrow to $0.34 in 2024 and further to $0.20 in 2025.

Reasons to Consider Buying SoundHound AI Now

Investing $500 in SoundHound AI right now appears to be a savvy choice. The company’s technology has established itself as essential across major enterprises, and the acquisition of Amelia is poised to boost revenues and expand into new markets.

With key organizations like Stellantis, Nvidia, and Qualcomm utilizing its technology, SoundHound AI is positioned well to grow in areas that demand voice assistant capabilities, particularly where companies lack the resources to develop their own solutions.

Currently, SoundHound AI trades at a price-to-sales ratio of 26, indicating it’s not the most affordable option. Investors should expect some stock fluctuations, but a $500 investment could be well worth it as the demand for AI-driven voice assistants continues to rise.

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

Before making a decision, consider this:

The Motley Fool Stock Advisor team recently highlighted what they believe are the 10 best stocks to invest in currently, and SoundHound AI was not included. The selected stocks have the potential for significant returns in the coming years.

For instance, Nvidia was featured in this list on April 15, 2005. If you had invested $1,000 then, it would have grown to $845,679!*

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*Stock Advisor returns as of October 14, 2024

Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill, Nvidia, and Qualcomm, and recommends Stellantis while suggesting 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 those of the author and do not necessarily reflect those of Nasdaq, Inc.