Hitting a home run with an investment can be extremely satisfying, as it can produce incredible returns. But there are also strikeouts. For all-or-nothing style investors, strikeouts occur far more often than home runs. Still, for those with the right stamina, this can be a worthwhile investment strategy, provided the overall returns make up for the huge losses.
Some investors may have been searching recently for artificial intelligence (AI) stocks with such home run potential, and I think I've pinpointed one. SoundHound AI (Nasdaq: SOUN) It has the makings of a potential home run investment, and NVIDIA (NASDAQ: NVDA)You couldn't ask for a better partner in the AI space.
Let’s take a look at why SoundHound is the best option for those who are up for a daring adventure.
The company's voice recognition technology has been successful in two areas.
SoundHound AI brings together AI and voice recognition. While the technology has many uses, the two areas where SoundHound has had the biggest impact are restaurants and automotive. Restaurants are automating drive-thru windows and taking orders over the phone. The restaurant industry has notoriously thin profit margins, so if restaurants can use AI at low cost to reduce their employee headcount, they will.
SoundHound's voice recognition technology is being integrated into digital assistants in the automotive industry. Hands-free technology has been around for over a decade, but it's cumbersome and doesn't always work properly. SoundHound is solving this problem, leveraging ChatGPT to integrate generative AI technology into their products.
However, this requires an internet connection to work properly, so Nvidia and SoundHound have worked together to embed a large language model in the onboard GPU, allowing the model to work regardless of the vehicle's location.
Overall, SoundHound offers a great value proposition for customers. However, we do have some concerns about the company's financial position.
SoundHound is wasting a lot of money
In the first quarter, SoundHound's revenue was up 73% year over year to $11.6 million. That's an impressive figure, but compared to most companies, $11.6 million isn't a huge amount of revenue.
SoundHound's financial problem is its burn rate, which makes it very unprofitable: Despite making $11.6 million in revenue, it posted an operating loss of $28.5 million, meaning it was spending nearly four times as much as it was making money. It's an unsustainable model, but it's understandable for a company still in the early stages of product deployment.
SoundHound's saving grace is its massive backlog. This metric, which is the sum of all future bookings, doesn't guarantee revenue. But it does paint a picture of potential demand. If SoundHound can convert its $682 million backlog into true revenue, it will be a huge success.
With such a large backlog, SoundHound should have no problem issuing shares in the public markets to raise additional funds and continue operating an unprofitable business.
But given all this, is the stock worth investing in? During the AI boom earlier this year, the stock was trading at a much higher valuation, but 20 times sales is still a lot of money for a company that still has a lot of work to do before it gets going.
I believe there is still enough money to invest in SoundHound, but anyone buying this stock should be prepared for their investment to go to zero. If you can afford it, this stock has great potential and is worth considering. Just remember to keep your position size very small as a total loss is possible.
Should you invest $1,000 in SoundHound AI right now?
Before you buy SoundHound AI shares, consider the following:
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Things to consider NVIDIA This list was created on April 15, 2005…If you invested $1,000 at the time of recommendation, That comes to $757,001.!*
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Keithen Drury has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Nvidia. The Motley Fool has a disclosure policy.
Looking for an artificial intelligence (AI) investment that's going to be a home run? Consider this AI stock that Nvidia is investing in. This was originally published by The Motley Fool.
