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Founded in 2005, SoundHound AI (SOUN) has evolved from a voice search technology company into a pure-play artificial intelligence (AI) innovator, offering a diverse range of products and services. The company distinguishes itself by developing a highly customizable AI platform that can be easily integrated into various applications across multiple industries.
Trading at around $6.30 per share, Soundhound AI is a penny stock. Nonetheless, Soundhound has piqued investors' and analysts' interest. The overall boom in AI stocks has benefited companies like SoundHound AI as investors seek opportunities in this transformative sector. With AI adoption expected to accelerate across industries, SoundHound AI's innovative platform has the potential to drive significant growth. Its outstanding third-quarter results are proof of this.
The stock has soared an eye-catching 194.1% year-to-date, wildly outperforming the S&P 500 Index’s ($SPX) gain of 23.5%.
Soundhound AI’s Financials Keep Improving
SoundHound AI's Houndify platform can be used in a variety of industries, including automotive, entertainment, retail, restaurants, and consumer electronics. The increased adoption of this platform has helped to strengthen the company’s financials.
In the third quarter of 2024, total revenue increased 89% year on year to $25.1 million. The company now has a broader mix of customers, reducing reliance on a single customer or industry; each customer now accounts for 5% to 25% of revenue. This is in comparison to revenue of over 90% just from automotive customers in the prior-year quarter. The third quarter also marked the first time the company's revenue exceeded $25 million.
SoundHound AI has demonstrated a strong revenue trajectory, with increases in both top-line and customer base expansion. However, like many growing tech firms in the AI space, it is still not profitable. Adjusted net loss per share narrowed to $0.04 from $0.06 in the prior year quarter.
In the Q3 earnings call, SoundHound stated that it has about $39 million in outstanding debt, leaving a cash balance of $136 million.
CFO Nitesh Sharan stated, “We want to make sure we aren't shortchanging opportunities either, so we will balance moving fast to capture market opportunities with driving efficiencies to move towards profitability.” The company intends to achieve adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) profitability by the end of 2025.
In the third quarter, it completed the acquisition of Amelia, an enterprise conversational AI leader. Through this acquisition, Soundhound intends to expand into finance, insurance, and healthcare. The company has partnerships with leading companies in various sectors, including Oracle (ORCL), Samsung, Nvidia (NVDA), Deloitte, ServiceNow (NOW), and many others, resulting in a stronger overall position.
SOUN also updated its revenue guidance for the next two years. Compared to $45.9 million in 2023, revenue is expected to range between $82 million and $85 million in 2024, and 2025 revenue could be in the range of $155 million and $175 million.
Analysts predict that SoundHound's revenue will increase by 82.8% in 2024, followed by an additional 95.7% in 2025. Analysts do not expect the company to report profits within the next two years. However, losses could fall to $0.38 per share in 2024 and $0.25 in 2025.
Trading at 14 times forward 2025 estimated sales, SOUN stock is a reasonable AI stock to buy now. The company's revenue growth rate, combined with the explosive growth prospects in the voice AI market, suggests it won’t be long before it turns profitable. As management stated, “AI customer service will become as necessary to all businesses as Wi-Fi and electricity.”
Is SOUN Stock a Buy Now?
Analysts are optimistic about SoundHound AI’s potential, particularly as the AI sub-sector continues to experience rapid growth. Recently, H.C. Wainwright analyst Scott Buck reiterated a “buy” rating on the stock, citing the company’s impressive revenue growth and future prospects. Buck is also impressed by the company's balance sheet strength, which he believes will give it the "flexibility to pursue growth initiatives." Buck has a price target of $8 for the stock.
The word on the Street for SOUN stock is a “moderate buy.” Out of the six analysts covering SOUN, four rate it a "strong buy," while two rate it a "hold." The stock has an average target price of $7.92, implying a 25.7% upside potential from current levels.
Furthermore, following the robust Q3 results, Wedbush analyst Daniel Ives increased the target price for SOUN from $9 to $10, and maintained an “outperform” or “strong buy” rating. This high price estimate suggests the stock can rally another 58.7% in 2025.
The Key Takeaway for SOUN Stock
With a market cap of $2.28 billion, SoundHound AI is surrounded by trillion-dollar market cap tech titans, such as Amazon (AMZN), Alphabet (GOOGL), and Apple (AAPL) in the AI space.
These companies already dominate the voice AI market. Investors should take note of Soundhound AI's ability to continue executing its business strategy, maintaining strategic partnerships, and innovating in the competitive field of AI technology. Furthermore, the company's expansion into new end markets with high growth potential may boost its earnings in the long term.
However, because SOUN is a penny stock, investors should conduct thorough due diligence before making any investment decisions.
