When most investors think about artificial intelligence (AI), the companies that come to mind are Nvidia, Microsoft, and Amazon. While those trillion-dollar giants have absolutely earned their reputations, there are many companies at the smaller end of the market also leaving their marks on this emerging industry.
SoundHound AI (SOUN -0.98%) is one of them. It's a small enterprise with a valuation of just $430 million, but it boasts some of the world's largest companies as customers.
SoundHound stock flies under the radar. The Wall Street Journal tracks just five analysts covering it, but they are overwhelmingly bullish and their average price target points to a whopping 152% upside from where the stock trades today. Here's why investors might want to follow the Street's lead.
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SoundHound AI is a leader in an important segment of the AI industry
Most people are now familiar with online AI chatbots like OpenAI's ChatGPT. They respond to text-based prompts from a user to answer questions and provide information, and they have the ability to generate images, videos, and even computer code based on parameters requested by the user. SoundHound specializes in voice AI technology, which it says can process speech just like the human brain.
The company has developed AI voice solutions for a number of industries. It's in thousands of restaurants, and it's also finding its way into new cars around the world thanks to partnerships with leading manufacturers like Mercedes-Benz and Hyundai. In the recent third quarter of 2023 (ended Sept. 30), SoundHound became the first ever voice assistant with generative AI capabilities to go live in European vehicles.
In the restaurant segment, SoundHound offers an AI-powered, fully automated drive-thru platform, a phone ordering solution, and an automated ordering system for dine-in customers. Not only do those technologies reduce costs for the restaurant (more automation means fewer staff), but the company says self-serve solutions can also lead to 30% more spending.
There is a long list of restaurants using SoundHound right now, including restaurant chains like White Castle and Beef 'O' Brady's. But the company has accelerated its industry penetration by partnering with service providers like Toast and Block's Square, which produce point-of-sale systems. In September, SoundHound also announced an integration with restaurant software provider Olo, which will make its voice AI technology available in 77,000 locations.
For automotive companies, SoundHound has developed an in-car voice assistant powered by its own AI models combined with ChatGPT to deliver just about any knowledge a driver could possibly need. It can provide information on the weather, the stock market, local restaurants, and even flights.
SoundHound AI's business is still in the scale-up phase
As with any company in the early stages of commercializing its product, SoundHound's quarterly revenue tends to be lumpy. It generated $13.2 million in sales in Q3, up 19% year over year. Even better, it was a 52% increase on a sequential basis.
While that year-over-year growth rate seems slow for a company generating a relatively small amount of revenue, it isn't for a lack of demand. SoundHound has an order backlog worth a whopping $341.7 million, and it continues to grow. As businesses continue to discover monetizable use cases for AI, they will turn to SoundHound for its ready-made solutions -- and that opportunity could be worth an estimated $160 billion by 2026, according to the company.
SoundHound is also working on improving its net losses. While growth at all costs was the best strategy for tech companies a few years ago, it has become harder to raise fresh capital -- so they are instead opting for steady growth, with a healthier bottom line. SoundHound lost $20.2 million in Q3, but that was a 33% reduction compared to its $30.1 million loss in the year-ago period.
Wall Street is bullish on SoundHound AI stock
As already mentioned, The Wall Street Journal tracks five analysts covering SoundHound AI stock. That's a very small number; Nvidia, for example, is covered by 52 analysts, and a more diverse set of opinions will generally lead to a more accurate outlook for a given stock.
Nonetheless, all five of the analysts have given SoundHound stock the highest possible buy rating -- none recommend selling, nor do any even recommend holding. It's a crystal-clear bullish consensus. They have an average price target of $4.52, which points to a 152% upside from where the stock trades.
But before investors rush to buy into the SoundHound story, they should keep in mind its stock is incredibly volatile. Its 52-week low was $0.93 per share, while its 52-week high was $5.11. That's a substantial variance, so this investment is likely suited for those with a strong appetite for risk.
In any case, it's clear SoundHound has a major opportunity ahead, and the demand from top-tier customers continues to roll in. If the company can execute, it could become a key player in the emerging AI industry over the long term.
