SoundHound AI is one of Nvidia's most recent investments. What does the future hold for the company?
NVIDIA is arguably the hottest stock in the tech industry. Its every move is closely watched, and when it announced it was investing heavily in artificial intelligence (AI) companies, SoundHound AI (Seong -0.98%) Last February, the small-cap stock surged more than 50% in a single day.
While you may not have heard of them before, SoundHound is by no means a new company. It's been around since the mid-2000s, when it was introduced as a music discovery app to rival Shazam. The company recently pivoted and is now a leader in AI-powered voice recognition.
The company's shares more than tripled to a record high in March but have since fallen after the company reported somewhat disappointing numbers: fourth-quarter 2023 revenue of $17.2 million, below expectations of $17.8 million, and a net loss per share of $0.07 compared to expectations of $0.06.
After a somewhat disappointing fourth quarter, the company appears to be back on track, reporting its Q1 2024 numbers. That said, with the company's shares down 50% from their March peak, is now the time to invest? Let's take a look at the company's outlook and some of the challenges ahead.
Relationships matter, and I have some great friends at SoundHound.
SoundHound has some great partners. First, of course, there's Nvidia. Normally, you don't buy 1.7 million shares unless you believe the company has something special and can deliver. Of course, investments made by companies don't always pan out, but backing from a company of Nvidia's calibre, which seems to have a crystal ball when it comes to AI, is reason enough to be interested.
But more importantly, the relationship represents an integration of our two companies' products and technologies. SoundHound's flagship product, Chat AI, will power voice and text interactions with NVIDIA's DRIVE platform, Nvidia's self-driving solution. NVIDIA's success is SoundHound's success.
In addition to NVIDIA, SoundHound's technology is already in use at other major automakers, including: HondaKia, and HyundaiUsed by technology companies like square, Oracleand MotorolaWhite Castle is also using the technology to make ordering a burger that much easier. This isn't an exhaustive list, but the point is that SoundHound has a lot of big companies wanting to collaborate on this technology.
The technology is amazing
Ultimately, for SoundHound to be successful, it has to deliver on its technology. Its market-leading technology is what makes SoundHound unique. So what is so special about SoundHound?
SoundHound's pitch is that voice interaction is the future. It's the most intuitive and natural way humans communicate. But so far, voice chatbots have lagged far behind. SoundHound claims that the interaction is real-time, with a much deeper, contextual understanding of what's being requested than you can experience with Siri or Alexa.
Remember our integration with Nvidia DRIVE? SoundHound announced that it will be able to work offline, without a cloud connection. Nvidia's chip and SoundHound's technology will allow the processing to happen locally in the car you're using. Normally, chatbots require a cloud connection. Now, they can continue to work even if you lose service.
SoundHound also builds monetization directly into the service, and this is a key aspect. Users are served ads that are contextually relevant to what they're doing. For example, say you hop in your car and ask for directions home. It's 7pm. Your car gives you directions home and asks if you're hungry. You reply that yes, pizza sounds good. The car then tells you that Little Caesar's is having a special sale.
This led to great success alphabetGoogle is in the top 100 in ad space. Voice has become the primary way people interact with the internet, so they're in a position to sell the most valuable ad space. Now, when you go online, you're seeing ads; it's a part of life. As more and more interactions are done through voice, that's premium ad space.
There are some big obstacles standing in the way
The elephant in the room is the rest of the Big Tech companies. Companies like Google, appleand Amazon They're developing their own voice technology, and they're certainly looking to integrate existing technology with advances in AI. Given the time and vast resources of major tech companies, it's highly unlikely they won't develop a product with comparable technical capabilities to SoundHound's.
This by no means means the end of SoundHound, but it does put some pretty significant limitations on the overall market the company can target, and could create some pretty stiff competition in a market where it's already successful.
The upside if any of these companies were to develop a product comparable to SoundHound would be that they would be forced to acquire SoundHound for a large sum. For example, if Google felt it was falling behind Apple (or vice versa), it could consider acquiring SoundHound or licensing its technology for a significant amount of money.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of The Motley Fool's board of directors. Johnny Rice does not own any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet, Amazon, Apple, NVIDIA and Oracle. The Motley Fool has a disclosure policy.
