What's the hottest artificial intelligence (AI) stock on the market right now? You might think it's Nvidia (NVDA +3.75%). After all, the giant chipmaker recently reported blowout fourth-quarter results and predicted the strong growth will continue.
But there's at least one other AI stock that is outperforming Nvidia so far in 2024: SoundHound AI (SOUN +1.90%). Shares of the conversational AI leader are up more than 80% so far this year. The company is scheduled to report its Q4 results later this week.
Should you buy SoundHound AI stock before Thursday's big announcement? Nvidia has.
NASDAQ: SOUN
Key Data Points
Nvidia's AI buying spree
SoundHound AI shareholders can thank Nvidia for the huge year-to-date gain. The stock was flailing until Nvidia submitted its 13F-HR filing to the U.S. Securities and Exchange Commission on Feb.14. That filing revealed that Nvidia had bought more than 1.73 million shares of SoundHound AI.
To be sure, Nvidia's investment in SoundHound amounted to pocket change for the huge GPU maker. There were also four other AI stocks listed in the regulatory filing, two of which were much bigger purchases for Nvidia. However, many investors saw Nvidia's initiation of a position in SoundHound AI as something of an endorsement of the small company.
The relationship between Nvidia and Soundhound AI isn't a new one. In 2017, Nvidia, along with several other investors, funded a $75 million capital raise for the small company when it was still privately held.
Why SoundHound AI is intriguing
I think SoundHound AI is without question an intriguing company. It has built an impressive customer base in recent years thanks to voice AI technology that is arguably the best available.
SoundHound AI has been especially successful in the automotive industry. A "who's who" of automakers use its AI platform, including Honda, Hyundai, Kia, and the Stellantis family of cars (Alfa Romeo, Chrysler, Citroen, Dodge, Fiat, Jeep, Opel, and Peugeot).
The company has also made significant inroads in the restaurant market. Its partners include Beef O'Brady's, Krispy Kreme, Oracle Food and Beverage, Toast, and White Castle.
SoundHound estimates its total addressable market at more than $160 billion. In addition to automotive and restaurant applications, the company is actively going after opportunities in entertainment and the Internet of Things markets. It also hopes to target financial services, healthcare, retail, and more.
The company is growing by leaps and bounds. In the third quarter of 2023, SoundHound AI's revenue soared 19% year over year and 52% sequentially. It also achieved a strong gross margin of 73%.
Should you buy SoundHound AI stock before Thursday?
SoundHound provided a wide Q4 revenue guidance range in November of between $16 million and $20 million. The company also expects to generate positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in Q4. If SoundHound trounces the average analysts' estimate of $17.75 million and achieves its EBITDA goal, its shares could take off.
So should you buy SoundHound AI stock before the company's Q4 update on Thursday? I wouldn't go that far. Scrambling to buy SoundHound AI quickly in an attempt to score a huge gain on better-than-expected quarterly results is a gamble.
On the other hand, SoundHound does have a big long-term opportunity with its voice AI technology. It's continuing to deliver solid growth. If you're an aggressive investor seeking an AI stock that's still small, I think that SoundHound AI is worthy of a serious look.
Editor's note: This article has been revised to clarify Nvidia's 2017 investment in Soundhound AI.
