Shares of SoundHound AI (SOUN 0.65%) had soared this year. The artificial intelligence (AI) expert, specializing in AI-powered voice controls, has scored a 122% gain year to date.
Is there any room left for further growth, or did SoundHound AI already peak? Let's find out.
NASDAQ: SOUN
Key Data Points
Understanding SoundHound AI's recent stock performance
This isn't even the top of SoundHound AI's stock chart mountain. Share prices soared all the way to $8.91 per share in March. At the current price of roughly $4.70 per share, the stock has dropped 54% below that summit.
I'll admit that the March rush was a speculative event. I'm sure you already know that AI hardware giant Nvidia (NVDA +1.93%) inspired that jump by disclosing a small investment in the voice interpretation specialist. Nvidia only bought $3.7 million of SoundHound AI stock in 2023, but that disclosure still more than tripled share prices when the purchase was disclosed in mid-February.
The purchase was notable because Nvidia doesn't buy shares of other companies very often. Furthermore, SoundHound AI investors were hoping it might be the harbinger of a larger stock-buying move later on or perhaps an outright acquisition of the whole company.
None of these ideas have come to pass, and SoundHound AI's stock cooled dramatically. However, the Nvidia investment put this company in the Wall Street spotlight in a whole new way. In addition, SoundHound AI announced a development partnership with Nvidia a few weeks later. The companies have already presented a voice-controlled large language model (LLM) that can manage the Nvidia Drive platform's in-car systems without even connecting to the internet.
Nvidia's role in SoundHound AI's jumpy stock moves
So, there was some substance to the Nvidia-based speculation, but not quite the all-in investment the most bullish SoundHound AI investors had hoped for.
At the same time, the company is in a prime position to deliver torrential sales growth over the next few years. The customer list keeps growing longer and richer, expanding from the automotive industry to restaurant chains and healthcare systems. The Houndify voice interaction system can figure out what you mean to say in a noisy environment, place your words into the proper context, and still run the advanced analysis in real time. There are other speech-to-text systems, but SoundHound AI's solutions stand head and shoulder above the rest thanks to decades of experience.
Don't miss SoundHound AI's huge order backlog
Soaring interest in SoundHound AI's voice controls is building a massive backlog of unfilled orders and long-term contracts. That's not my idea, but a firm number the company reports in every quarterly earnings call.
The backlog stood at $723 million in the latest report, up from $339 million a year ago and $283 million the year before that. The order volume isn't just soaring but accelerating. And the average contract length is "slightly less than seven years," up from 6.5 years in the summer of 2023. Those clients are signing up for longer contract commitments over time.
These guaranteed sales numbers are impressive for a small-cap company with just $55.5 million of trailing-12-month sales. SoundHound AI's top-line revenues should skyrocket as the company collects revenues in return for delivered services over the next seven years. And don't forget that the backlog keeps growing larger, too.
Future ambitions and market expansion
As you can see, SoundHound AI has plenty of growth catalysts going on, and I expect big things from this high-octane growth stock. Meanwhile, the company is expanding its profit margins while going after new target markets. In the long run, SoundHound AI's management wants to "delight" end users across billions of voice-controlled devices, doing better than actual humans in terms of understanding what the user is asking for.
The long-term vision is a work in progress, of course. It will take time to deliver these features, especially on a global scale. But the ambition is there, and I don't think SoundHound AI will be a small-cap stock much longer. The stock looks like a great buy in the fall of 2024, and I can't wait to see it evolve over the next couple of decades.
