SoundHound AI stock has risen more than 80% since the beginning of the year, outperforming major indexes.
Artificial intelligence (AI) has many uses. One budding area of AI that major tech companies are currently researching is voice recognition software.
“Magnificent Seven” members microsoft, apple, Amazon, alphabetand Nvidia Everyone is investing heavily in AI-powered voice.
But even as big tech companies pursue the technology, smaller companies have taken center stage this year. Soundhound AI (Seoun -7.31%) specializes in speech recognition software for the restaurant, automotive, and smart home industries.
SoundHound AI stock soared earlier this year following news that Nvidia was investing in the company.
Although the stock has retreated from its all-time high, it is still up more than 80% year-to-date. Compare this with a 3% return. Nasdaq Compositeyou may be wondering if SoundHound AI can be a million-dollar opportunity.
AI-powered voice technology will become a huge market
According to Statista, the market for voice recognition technology could reach $50 billion by 2029. When you consider that this technology can be integrated into cars, smart home appliances, and various business environments, it's easy to see why many of the world's largest companies are pursuing this technology.
Additionally, venture capital investor Chamath Palihapitiya recently posted on X (formerly Twitter) that voice is the “front door” to the next stage of the AI revolution.
Palihapitiya may be on to something here. He's been here for just over a year now, and the world has fallen in love with his rise to ChatGPT. Its creator, OpenAI, recently announced that the company is considering applications for his AI-powered voice.
Given the potential size of the market and the number of big-name companies competing with it, it's interesting that a smaller player like SoundHound is getting so much attention.
SoundHound AI is attracting attention…
Nvidia released a 13F filing disclosing its investment in SoundHound in February, but has been investing in the company since 2017. This was before SoundHound went public, and the company had raised funding from venture capital and prominent tech giants.
In 2023, SoundHound AI's revenue increased 47% to $45.9 million. Additionally, the company reported a 51% reduction in operating loss and a negative adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $35 million.
While this growth is attractive, it doesn't fully explain the triple-digit gains in the stock price at various points in 2024.
Can investing in a company make you a millionaire?
To illustrate, let's assume SoundHound maintains its 2023 growth rate through 2030 to project future sales. By doing so, the company will generate approximately $680 million in revenue by 2030.
Additionally, at the time of writing this article, the company's price-to-sales multiple (P/S) is approximately 18 times. Considering there is a lot of competition to enter the voice recognition market and the company's path to profitability is unproven, the long-term P/S multiple will be cut in half to 9x.
These assumptions give the stock a future market capitalization of $6.1 billion. This is roughly 5.5 times the current market cap of $1.1 billion, meaning you would need to invest more than $180,000 to reach $1 million.
In addition to the large sums of money involved in a single position, SoundHound is also risky, making significant investments particularly risky.
The table below breaks down analyst consensus forecasts for SoundHound's revenue through 2025.
| Category | Predictions for 2025 | Predictions for 2024 | 2023 results |
|---|---|---|---|
| revenue | $102.8 million | $69.5 million | $45.9 million |
Data source: Yahoo Finance
On the surface, the growth trends in the table above are consistent with the assumptions made above. But alarm bells went off when I noticed a change in terminology regarding SoundHound's reported finances.
Specifically, management updated the way the company accounts for its backlog, which now includes an increase in non-guaranteed customer transactions. Additionally, details in corporate filings indicate that SoundHound recognizes non-recurring revenue sources in certain quarters, but management classifies these transactions as royalties and subscriptions for financial reporting purposes. ing.
This makes it difficult to understand SoundHound AI's true normalized revenue profile. Therefore, predicting a company's growth becomes an even more difficult task.
I think this stock is more of a momentum play, given the risks associated with the overhyped, smaller, less profitable company. Long-term investors should be wary of momentum stocks. Rather, if you're interested in the voice recognition market and its proliferation across the AI spectrum, investors have no shortage of other opportunities in more established and proven businesses.
Suzanne Frey, an Alphabet executive, 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. Adam Spatacco has held positions at Alphabet, Amazon, Apple, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Microsoft, and Nvidia. The Motley Fool recommends the following options: His January 2026 $395 long call on Microsoft and his January 2026 $405 short call on Microsoft. The Motley Fool has a disclosure policy.
