Generating 10x returns on a single investment is an impressive achievement. While some stocks do not achieve this return level, it is not uncommon to offer 10x returns in a reasonable time frame. One area where investors are looking for stocks with this potential is in the artificial intelligence (AI) realm, as there are many investment dollars flowing into this space to build AI computing capabilities.
However, with a lot of simple money in the artificial intelligence hardware space being created, it's time to consider investing in AI applications. One of the most popular is Soundhound AI (NASDAQ: soun). Soundhound combines audio recognition technology with generation AI to provide a large number of industries that can be implemented.
Management is bullish on the long-term outlook, and if correct, Soundhound AI can turn $10,000 to $100,000 within a relatively short time frame.
Image source: Getty Images.
Soundhound's technology is not innovative. Digital assistants like Siri and Alexa have been ruining audio prompts for years. What sets Soundhound's products apart is that they can outperform human counterparts in many scenarios, such as drive-thru orders.
Soundhound's products are used in many areas, including automobiles (digital assistants with the generative AI of automobiles), healthcare, retail and financial services. In the second quarter, Soundhound announced that seven of the top 10 global financial institutions were customers, four of which had renewed contracts or increased spending. This shows that Soundhound's products are useful and that more systems can be automated as clients become more familiar with the results they see from the software.
Soundhound's popularity has led to the company's monster growing, with revenues rising 217% year-on-year to $42.7 million. It's impressive growth, but Soundhound's revenue is under $50 million per quarter, indicating how small the business is. This will help you grow faster and more easily, and will tie you to management's long-term forecasts.
Part of the reason Soundhound has grown so rapidly is because it acquired several companies to strengthen its product lineup. Acquisition companies artificially inflate the company's growth rate.
When a company is in the acquisition stage, investors insist on knowing organic growth rates. Organic growth is how much you grow from your existing business units. This makes it easier for investors to have a clearer understanding of how the basic business is doing and determine whether all growth is bolt-on or a combination of revenues and growth that has been acquired.
During the second quarter conference call, management noted that its impressive 217% growth rate was a combination of strong organic growth and acquired growth. But as we move forward, management is seeing organic growth rates of over 50% possible in the near future. It's an impressive person, and if the company can deliver its forecast, Soundhound is a tremendous stock choice.
Soun revenue (quarterly growth) data from YCHARTS. yoy = year-on-year.
If Soundhound's revenue growth rate leads to stock growth directly, Soundhound could turn its $10,000 investment into $100,000 over roughly six years. It's a big, quick win for investors, but there's no guarantee that the Soundhound will be able to maintain that growth in its time frame. Additionally, competition from other companies that disrupt Soundhound's business model could be intensified.
As a result, investors need to balance portfolio sizing and risk. This way, if inventory goes to zero, it won't have much impact on your portfolio. But if you really can do 10 times more, a small 1% to 2% investment could turn into a much larger portion of your portfolio. Whether Soundhound is a successful investment will take some time, but with a wide range of use cases and bullish market forecasts from management, you won't be surprised if it's a big winner.
Consider this before purchasing stock with Soundhound AI.
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Kisen Drury has no position in any of the stocks mentioned. Motley's fools have no position in any of the stocks mentioned. Motley Fools have a disclosure policy.
How Soundhound AI can turn $10,000 into $100,000 was originally published by The Motley Fool
