The past several years have been a roller coaster ride for SoundHound AI (SOUN 5.77%) investors. The stock debuted to much fanfare via a special purpose acquisition company (SPAC) in early 2022, soaring more than 100% in the first week after going public. The other shoe soon dropped, however, as the stock lost more than three-quarters of its value in the following months.
However, the excitement surrounding artificial intelligence (AI) and the potential for SoundHound to revolutionize voice AI services have sent the stock surging, gaining 286% so far this year (as of this writing).
There's more to this company than meets the eye, and there's a lot going on behind the scenes. Let's dig in to discover three things about SoundHound AI that the smartest investors know.
Image source: Getty Images.
The Nvidia investment isn't what it seems
SoundHound AI has been on fire since mid-February. The spark that ignited this blaze was a regulatory filing by Nvidia (NVDA 6.18%) that revealed a stake in SoundHound. Investors took that as the Nvidia seal of approval, and shares of the stock soared as much as 80% in a single day.
While that might seem like a big deal, the devil is in the details. Nvidia's stake of 1.73 million shares represented less than 1% of SoundHound's total count of about 247 million shares -- so it isn't even a sizable investment. Furthermore, a little digging reveals that Nvidia invested in SoundHound in 2017 when it was still a start-up, so in all likelihood, none of that investment was recent.
Don't get me wrong. The fact that Nvidia invested in SoundHound definitely represents a vote of confidence, but it certainly was not worth the stock doubling over the past month.
Attracting some big-name customers
SoundHound AI's voice recognition software is currently focused on the restaurant and automotive industries, and the company has had some big wins of late.
Late last year, SoundHound inked a deal with fast food chain White Castle to create voice-enabled, drive-thru menu boards that allow customers to place orders without interacting with staff. The result was orders that were processed in under 60 seconds, on average, with a 90% order completion rate -- exceeding previous staff-based benchmarks.
The company debuted similar technology in collaboration with Jersey Mike's Subs, offering customers phone-based ordering for pickup. The initial test involves 50 stores but could eventually expand to Jersey Mike's more than 3,000 locations.
Just last month, SoundHound AI announced that after a successful pilot, its generative AI-powered assistant, Iris, would be integrated across the full line of Stellantis vehicles across Europe, available in 13 languages in 18 countries. The system allows car occupants to make a call, plan a trip, open the sunroof, or check on sports scores, among other voice-activated tasks.
These customer wins could lead to adoption by other big-name restaurants and carmakers. But time will tell.
Large and growing backlog
These big contract wins were evident in SoundHound's fourth-quarter results. Revenue of $17.1 million surged 80% year over year, while its loss per share of $0.07 was cut in half. Most telling was the company's backlog, which nearly doubled to $661 million. Since this is a forward-looking metric, it suggests that SoundHound is piling up a "sound" future.
Management expects SoundHound's growth to continue. In 2024, the company is guiding for revenue of $70 million at the midpoint of its guidance, which would represent growth of 53%. SoundHound expects 2025 revenue of $100 million or growth of 43% while achieving positive adjusted EBITDA.
Is SoundHound AI stock a buy now?
Based on recent developments, SoundHound AI certainly has plenty of things going for it. That said, investors should still approach the stock with caution, particularly given its gains of more than 300% over the past year (as of this writing). As a result, the stock is currently selling for 25 times next year's sales, a frothy valuation for a company that has yet to generate a profit.
That's not to say that investors should avoid SoundHound AI completely. Rather, the stock is risky, and any position should represent a small part of a diverse portfolio.
