Share prices of SoundHound AI (SOUN 5.77%) have rocketed this year following soaring demand for the company's AI voice solutions, in addition to the news that AI chip leader Nvidia made a small investment in the company. The stock recently pulled back after hitting a high of $7.90, but on Friday, Wedbush Securities raised the price target on SoundHound shares from $5 to $9 and maintained an outperform (buy) rating. The new price target is 60% above the current share price of $5.62.
Sometimes analysts shift their price targets to reflect recent price moves, and that appears to be the reason behind Wedbush's recent call. But long-term investors should care more about how Soundhound's business is performing because that is ultimately what will create sustainable returns.
Why Wall Street is optimistic about SoundHound AI
SoundHound AI is seeing growing momentum for its voice technology powered by artificial intelligence (AI) from major companies in the automotive and restaurant industries. The company reported revenue growth of 80% year over year in the fourth quarter -- an acceleration over the previous quarter's 19% growth rate.
On top of impressive top-line growth, recent strategic moves by the company suggest it is just getting started. In December, SoundHound AI announced the acquisition of SYNQ3, a leading voice AI solutions provider in the restaurant industry. On the auto front, Soundhould also just announced that its Chat AI product will go into full production with Stellantis DS Automobiles this month.
Another positive sign for investors is that SoundHound's business is getting closer to reaching breakeven. It reported a net loss of $18 million last quarter, an improvement from the $31 million loss in the year-ago quarter.
It's the culmination of these developments that explains why most analysts are bullish on this small-cap stock.
