Investing in artificial intelligence (AI) is in its early stages, and while some stocks have received lots of hype, others haven't seen the same effect. One of these under-the-radar stocks is a growing AI company, SoundHound AI (SOUN -3.87%).

Although the company has been around since 2005, its technology is just starting to catch on, and it's seeing enormous growth. The stock trades for just over $2 right now, and Wall Street analysts have a consensus price target of $5, indicating a 130% upside. Is it too good to be true? Or is SoundHound AI a great investment? Let's find out.

SoundHound's revenue growth continues to accelerate

SoundHound AI (you guessed it) analyzes audio with AI. Its technology has multiple applications, like a restaurant ordering system, an automotive digital assistant, a smart home, and more.

Recently, SoundHound partnered with the White Castle burger chain to modernize its drive-thru ordering. SoundHound's product performed better than the human benchmark, with orders processed in under 60 seconds and a 90% completion rate. While that's just one restaurant chain, imagine if SoundHound signed a larger fast-food customer.

That's the upside SoundHound investors are excited about, and it could send the stock skyrocketing. With more businesses focusing on using AI, SoundHound AI is in a good position to establish a strong foothold in this market as it emerges.

Although it's a microscopic company now (with a market cap of $430 million), at its current growth rate, it may not stay small for long. In the third quarter, revenue grew 52% year over year to $13.3 million.

The fourth quarter could be even better, with management guiding for $18 million in sales at the midpoint. Compared to last year's fourth-quarter revenue of $9.5 million, the company could nearly double its revenue in a year.

That momentum shows that businesses are integrating SoundHound's products into their systems. For 2024, Wall Street analysts expect 62% sales growth, so the company's future certainly looks bright.

But can it survive?

SoundHound is burning cash quickly

Because the company is still in a growth-at-all-costs phase, investors shouldn't be surprised that SoundHound isn't profitable. In the third quarter, it used just under $21 million for its operating activities. With about $110 million still in the bank at the end of the quarter, it has about a year before it must produce profits or raise money to survive.

With how well its business is doing, it shouldn't be difficult to raise more money. However, it is something investors must consider because management could choose to offer more shares, which would dilute the shares and harm existing shareholders. That dilutive solution seems more likely at a time where bank loans and other debt papers come with lofty interest rates.

That might seem like a problem, but it isn't uncommon for growing companies trying to reach scale to go through these funding rounds, especially considering SoundHound was probably prematurely brought public via a special purpose acquisition company.

Does that mean you should invest in the stock, though?

Its valuation is surprisingly reasonable

With SoundHound's strong service and rapidly growing business, you might think the stock would be valued at a sky-high premium, but it's not.

SOUN PS Ratio Chart

SOUN PS Ratio data by YCharts PS = price to sales.

At just under 13 times sales, SoundHound's stock is reasonably priced for the growth it's putting up. As a result, I think investors could have a very small portion of their portfolio in the company, since its products could be a practical application of AI.

The stock returning about 130% in under a year, as some analysts expect, may sound farfetched. However, I wouldn't be surprised if SoundHound can do that over the next couple of years with a few large customer signings. It will be a winning investment if it can do that.

But because SoundHound AI is so dependent on a few contracts, it could easily not work out. That's why sizing your investment position properly is so important when investing in businesses like SoundHound.