When it comes to artificial intelligence (AI) companies, the "Magnificent Seven" stocks seem to garner much of the attention from media and investors. This cohort, which is comprised of mega-cap behemoths Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta Platforms, and Tesla, are all playing a role in the advancement of artificial intelligence (AI) -- cloud computing, robotics, self-driving cars, semiconductors, and more.
Savvy investors understand that there are a host of other potentially lucrative AI investments beyond the Magnificent Seven, though. One company that comes to mind is voice-recognition software application SoundHound AI (SOUN 2.24%). The stock is up a whopping 85% so far in 2024.
Can SoundHound AI stock keep up the momentum? Let's dig in and assess what's going on with the company and determine if investors still have a chance to profit from the action.
NASDAQ: SOUN
Key Data Points
What is happening with SoundHound AI stock?
SoundHound AI went public through a special purpose acquisition company (SPAC) a couple of years ago. If you aren't familiar with SPACs, this is simply a different path that a company can take in order to go public. SPACs experienced some fleeting popularity a couple of years ago, largely thanks to an entrepreneur named Chamath Palihapitiya.
Many SPAC stocks experienced trading activity similar to those of meme stocks.
SoundHound AI was no stranger to this dynamic, with the stock peaking at roughly $15 per share in 2022 -- only to crater to less than $1 months later. As the chart above illustrates, SoundHound AI stock has been getting bought up recently. The underlying driver behind its newfound momentum can be found in Nvidia's 13F filing.
Nvidia's latest 13F document shows that the company has investments in five public companies, including SoundHound AI. While its stake is only worth $3.7 million, investors flocked to SoundHound AI stock as interest and speculation over Nvidia's relationship with the company intensified.
Does SoundHound AI have potential?
Pouring money into SoundHound AI stock simply because Nvidia owns a chunk of the company is not a prudent financial strategy. Instead, taking a look at the market size and existing players in speech-recognition software development is a good idea.
According to SoundHound AI's management, the company is operating in a $160 billion market. While it's hard to know whether this figure is accurate, voice-recognition tools have been of high interest to some of technology's most influential players.
In 2018, Apple acquired SoundHound AI rival Shazam for $400 million. Before that, the company also spent $200 million in 2010 to buy Siri -- a voice tool native to Apple's flagship hardware devices.
In addition, Microsoft acquired speech recognition expert Nuance for $20 billion two years ago. This price tag represented Microsoft's third-largest acquisition behind LinkedIn and Activision Blizzard.
Rounding out big tech's activity in the voice-recognition space includes Amazon and Alphabet, both of which leverage the technology in their respective Internet of Things (IoT) smart-home appliances.
Given Big Tech's exploration of voice-recognition tools and its integration across a variety of different products and services, it's easy to understand why Nvidia may be interested in SoundHound AI. However, for now, details surrounding Nvidia's relationship with SoundHound AI are pretty sparse, and it's not yet entirely known how the two companies will work together.
Should you invest in SoundHound AI stock?
One thing I'd caution investors from doing is becoming disillusioned by the price tags attached to the acquisitions outlined above. While voice-powered assistants can be worth a lot of money given their myriad use cases, investors should realize that SoundHound AI is still very small.
For the quarter ended Sept. 30, SoundHound AI generated just $13.3 million in revenue. One thing that is encouraging is that the company is scaling at an impressive rate, which should help reduce its burn rate.
With fourth-quarter earnings slated for Feb. 29, I think the most prudent thing for investors to do would be to dial in and listen closely. Hopefully, management will provide details surrounding its outlook for 2024. More importantly, investors should be keen to learn how the company is working through its backlog and how business activity is trending now that SoundHound AI is on a lot more radars. Lastly, while it would be nice to hear about any developments with Nvidia, I am not holding my breath.
The most important thing for investors to understand is that wealth is not created overnight. It takes a long-term mindset and a lot of discipline to generate lucrative returns. To me, SoundHound AI stock is a little overbought right now thanks to the Nvidia disclosure. A $1 billion market cap is simply tough to justify for a company that is forecasting $46 million in revenue for 2023.
For this reason, I'd say it is not too late to invest in SoundHound AI stock. However, investors may be best served by listening to management on the upcoming earnings call and looking for a pullback rather than buying into the stock at today's ultra-premium valuation. I still see SoundHound AI as a speculative investment, albeit one that could reap game-changing returns in the long run.
