The fervor over artificial intelligence (AI) this past year raised investor interest in AI-focused tech companies such as SoundHound AI (SOUN 6.71%). This company has high ambitions, given its stated goal is to create "a voice AI platform that exceeds human capabilities."
The lofty vision is not just talk. Its technology allows SoundHound to capture customers around the world. And this year, it's executed some strategic acquisitions to accelerate its business expansion.
Does this mean now is the time to pick up SoundHound stock? Here's a look into the company to help you arrive at an answer.
SoundHound's AI solution
A key factor in evaluating SoundHound stock is its technology. The company's AI-powered voice software can handle complex spoken commands, making it flexible and powerful enough to embed into a variety of consumer devices, including cars and televisions.
This allows consumers to talk naturally to a device when issuing commands. For example, you can ask a SoundHound-enabled car to place a food order while you're driving to the restaurant.
The company's tech recognizes 25 languages, which is an important feature. SoundHound generated 71% of its $13.5 million in Q2 revenue from outside the U.S.
Its platform attracted clients such as Hyundai, which signed a multiyear deal to incorporate SoundHound's software into many of the automaker's vehicles. Peugeot, Alfa Romeo, and other Stellantis-owned car brands are using SoundHound as well.
The company is applying its software to sectors beyond automotive. Customer service and food ordering are additional areas where SoundHound's voice-activated AI can perform work. For example, the technology can be used to take orders at a fast food restaurant's drive-thru. That's why in January the company acquired SYNQ3, which provides voice AI capabilities to eateries, expanding SoundHound's reach to over 100,000 restaurant locations.
It also acquired AI software company Amelia just weeks ago. Amelia's diverse customer base, which includes clients such as Teva Pharmaceuticals, extends SoundHound's voice system to new industries, including healthcare, financial services, and retail.
SoundHound's financial strengths
SoundHound can expand its business through acquisitions because of its strong financials. The company exited Q2 with total assets of $266.7 million, with $200.2 million of that in cash and equivalents. Total liabilities were $42.7 million with no debt.
In addition, the company's sales steadily increased since it went public in 2022.
Data by YCharts.
While its revenue growth has been excellent, its acquisitions are expected to supercharge SoundHound's sales. For example, at the start of the year, the company estimated 2024 revenue to reach at least $63 million, which represented double-digit growth over 2023's $45.9 million.
Now, after acquiring Amelia and SYNQ3, SoundHound expects over $80 million in 2024 revenue, and anticipates 2025 sales to jump to $150 million.
With its strong balance sheet, rapidly rising revenue, and strategic acquisitions, it's no wonder the consensus among Wall Street analysts is a buy rating with a median price target of $7 for SoundHound shares.
Deciding on SoundHound stock
Despite its positives, SoundHound possesses some downsides. It's not profitable, incurring a net loss of $37.3 million in Q2. The acquisitions don't help here as they come with additional expenses and lower-margin businesses.
For instance, CFO Nitesh Sharan noted about Amelia, "We are cognizant that a significant acquisition like this will require heavy integration that will take time to fully align across the enterprise."
But it's worth noting many tech companies operate at a loss for years, sacrificing profit to grow their business as fast as possible, which is SoundHound's approach. So its lack of profitability isn't a concern at this stage, particularly given its phenomenal sales growth.
The other consideration is that SoundHound AI is a volatile stock, as indicated by its high beta of about 3. You can see this in its price history as well. Shares swung from a 52-week low of $1.49 in 2023 to a high of $10.25 in March. This means investing in SoundHound stock requires you to possess a high risk tolerance.
If you can bear through short-term volatility, given the company's successful tech and anticipated sales growth, SoundHound stock looks like a worthwhile long-term investment. With shares well below the 52-week high, now looks like a good time to buy as well.
