Buying and holding solid companies for a long time can help you significantly increase the value of your investments, as this strategy helps you take advantage of the power of compounding while also enabling you to benefit from disruptive innovation.
For instance, a $100,000 investment made in Nvidia and Netflix a decade ago has multiplied significantly over the years.
While Netflix has turned that money into almost $1 million, Nvidia has made investors multimillionaires over the past decade. The common link between these two companies is that they have been disruptive leaders in their markets. Netflix disrupted the movie rental industry and eventually pioneered the content streaming market. Nvidia brought its expertise in gaming graphics cards to the data center market and is now playing a central role in the proliferation of artificial intelligence (AI).
This article, however, isn't about Nvidia or Netflix. Instead, I'll focus on the prospects of SoundHound AI (SOUN 7.16%) -- a company that's very small right now but is sitting on a massive addressable market. Let's see if SoundHound AI could replicate Nvidia and Netflix's stock market performance and convert $100,000 into a million dollars.
What does SoundHound AI do?
SoundHound AI serves the nascent conversational intelligence market, an industry that is gaining prominence thanks to the growing adoption of voice-enabled AI solutions. Grand View Research estimates that the global conversational intelligence market could clock annual growth of almost 24% through the end of the decade. The firm points out that this market was worth $7.6 billion last year, and the projected growth suggests that it could generate almost $42 billion in revenue in 2030.
SoundHound AI is looking to capitalize on this market with its Voice AI platform, which allows companies to develop and deploy multiple AI-enabled voice features such as automatic speech recognition, natural language understanding, text-to-speech, and custom wake commands. The company provides custom AI-powered voice solutions to multiple industries such as automotive, restaurants, contact centers, banking, retail, and others.
The good part is that SoundHound AI has built an impressive customer base, which includes the likes of Stellantis, Hyundai, Qualcomm, Honda, Square, Snap, and others. What's more, SoundHound estimates that its total addressable market could be as big as $160 billion by 2026 thanks to the multiple industries that it serves.
The good part is that SoundHound is already benefiting from this massive market opportunity, as its recent results indicate.
The company is clocking solid financial growth
SoundHound AI has generated almost $29 million in revenue in the first nine months of 2023. It has guided for $18 million in revenue in the current quarter at the midpoint of its guidance range, which would put its annual revenue at $47 million.
While that's a small number in the context of Wall Street, it is worth noting that SoundHound's guidance points toward a 51% year-over-year increase in revenue. That's higher than the 47% revenue growth the company clocked in 2022. Even better, analysts are expecting SoundHound AI to sustain its healthy revenue growth over the next two years.
SOUN Revenue Estimates for Current Fiscal Year data by YCharts
However, don't be surprised to see SoundHound outperform analysts' expectations. That's because the company has a cumulative bookings backlog worth $342 million. This points toward a healthy revenue pipeline, as bookings ideally refer to the value of contracts signed with customers.
As the chart above indicates, SoundHound AI is estimated to generate a combined revenue of $165 million in 2024 and 2025. As the company is sitting on a much bigger backlog, it can cruise past those expectations and deliver solid gains to investors. But can SoundHound AI stock rise enough in the long run to turn a $100,000 investment into a million? Let's find out.
Can this stock make you a millionaire?
We have seen that SoundHound generated annual revenue of $31 million in 2022, and its top line is expected to hit almost $96 million in 2025, according to the chart in the previous section. That would translate into a three-year revenue compound annual growth rate of 45%.
The fast-growing nature of the market SoundHound operates in and the massive addressable opportunity the company is sitting on suggests that it could maintain a healthy pace of growth over the long run. We saw earlier in the article that the conversational intelligence market is predicted to clock 24% annual growth through 2030.
Assuming SoundHound can match the market's growth from 2026 to 2030, its top line could jump to $280 million at the end of the decade (using 2025's projected revenue of $95.7 million as the base). SoundHound AI currently has a price-to-sales ratio of almost 12, which seems justified considering its impressive growth.
Assuming that its sales multiple comes down to 10 at the end of 2030, SoundHound's market cap could jump to $2.8 billion by the end of the decade. That would be a jump of 430% from current levels, which means that a $100,000 investment in the stock right now could be worth $530,000 after seven years. Of course, that's quite some way off the million-dollar mark, but what's worth noting here is the impressive upside the stock could deliver in the long run.
So, even though SoundHound may not turn a $100,000 investment into a million over the next seven years, it won't be surprising to see it do the same over a longer period considering the terrific business growth it is likely to deliver through the end of the decade. That's why investors looking to buy an AI stock can consider buying and holding SoundHound AI as its robust long-term growth could lead to healthy stock market gains.
