One stock that's been generating a lot of interest this year is SoundHound AI (SOUN 3.28%). After it was revealed that chipmaker Nvidia has a stake in it, investors have grown bullish about the company. And given its relatively small $1.3 billion market cap, investors are likely hoping the stock can generate some significant returns.
But could SoundHound AI be the next great AI stock to own, and perhaps even grow its valuation by 100 times over the next few decades?
NASDAQ: SOUN
Key Data Points
Why SoundHound AI could be a huge growth stock
SoundHound AI is an exciting growth stock because there are many ways for its business to grow. Its cutting-edge voice AI and speech recognition technology could find applications in electric vehicles, drive-thrus at restaurants, and smart devices in general. Allowing customers to have conversations with an AI app through SoundHound's platform could help companies cut down on overhead and wage expenses while potentially improving accuracy, such as during an order-taking process.
With so many opportunities out there, it's not unreasonable to expect some terrific growth, especially as the company works closely with Nvidia. The business is still in its early growth stages, and that's evident from its rapid growth rate. In Q4 2023, SoundHound AI's revenue rose 80% year over year to $17.1 million, and it tightened its net loss to $18 million from the $30.9 million loss it incurred a year earlier.
Overall, the company is moving in the right direction and as long as it can capitalize on its opportunities, the business is likely to become much more valuable. In 2025, management expects the top line to exceed $100 million -- more than double the $45.9 million it reported in 2023.
Can SoundHound AI grow to 100 times its valuation?
For SoundHound AI to become a 100-bagger, its market cap would have to rise to around $130 billion. Over the course of two decades, that could be a possibility given the potential for AI to transform industries. And in 20 years, as stocks rise in value, $100 billion valuations may be more common than they are today, making it more plausible for SoundHound AI to reach that milestone.
There is a ton of growth out there in generative AI. Analysts from Grand View Research project that globally, the AI market was worth nearly $200 billion last year and it is growing at a compounded annual growth rate of 37.3% until the end of the decade, by when it will be worth a whopping $1.8 trillion. For SoundHound AI to be a 100-bagger over the course of 20 years, it would need to rise in value by a more modest rate of 26% per year. While that is a high growth rate, given the fast-growing pace of AI, it isn't by any means impossible.
The biggest risk for investors, however, is that SoundHound AI still faces a lot of uncertainty. While the AI market is full of potential, it still has to prove that it can be a leading voice AI company. It has been generating strong growth numbers thus far but its size is relatively modest. And the company is likely going to need to spend heavily on research and development to truly be a big player in AI. As of the end of last year, the company had $95.3 million in cash and cash equivalents on its books, and it burned through $68 million in just the last 12 months. Without a stronger financial position and with plenty of money still needed to likely grow the business, the danger for investors is that there will be a need for frequent stock offerings (i.e. dilution) in the future. And that means until SoundHound AI can build a sustainable, cash-flow positive business, there's going to be some considerable risk here for investors.
Should you invest in SoundHound AI stock today?
Nvidia has only made a modest investment in SoundHound AI right now, and likely for good reason -- the company and the stock are still not without their risks. Plenty of tech companies could provide comparable services, making its niche in AI a potentially hotly contested market. Year to date, SoundHound AI shares have doubled in value, and that's even after the stock fell sharply in recent weeks.
While AI is a promising growth opportunity, that doesn't mean SoundHound AI is a slam-dunk buy, even if it has Nvidia as an investor. It does have the potential to be a great long-term buy but investors should be wary of the risks.
