What happened
SoundHound AI (SOUN 0.60%) stock is climbing this week. The company's share price was up 6.7% compared to the previous week's market close as of 10 a.m. ET this Friday, according to data from S&P Global Market Intelligence.
SoundHound's gains this week are being driven by positive coverage from Daniel Ives, a senior analyst at Wedbush Securities. While the stock has seen volatile trading this year, Ives believes the voice-and-audio-recognition specialist offers massive upside at current prices.
So what
In coverage issued on Aug. 12, Ives reiterated a one-year price target of $7 per share on SoundHound stock. The coverage caused the company's share price to jump higher at the start of this week's trading, and the stock has managed to hold on to significant gains despite a pullback today.
Based on SoundHound AI's current valuation, Ives' price target implies potential upside of roughly 220%. The Wedbush senior analyst is highly respected in his field and has had some great picks in the artificial intelligence (AI) space, so it's not surprising that investors are excited about his coverage of the stock.
Now what
While SoundHound AI is still a relatively small company with a somewhat speculative outlook, the business has been growing at an encouraging pace. The company recorded revenue of $8.8 million in the second quarter, representing growth of roughly 42% year over year. For the current fiscal year, the company expects to post sales between $43 million and $50 million -- suggesting annual sales growth of roughly 53% at the midpoint of the guidance range.
But while the company does expect to shift into the black on a non-GAAP (adjusted) earnings before interest, taxes, depreciation, and amortization (EBITDA) basis in the fourth quarter, it's unclear when the company will begin delivering actual generally accepted accounting principles (GAAP) profits.
As it stands, investors should approach SoundHound AI stock as a high-risk, high-reward play. The company is a specialized player in a niche industry that could have a long runway for growth, but charting its sales and earnings performance over the next few years and beyond involves a high degree of speculation.
