Over the last couple of years, abnormally high inflation in combination with rising borrowing costs inspired some businesses to focus more on internal efforts and push off any ideas about acquisitions or special projects.
But now that inflation is cooling and the Federal Reserve has begun to taper interest rates, corporate balance sheets are strengthening.
Moreover, I think it's only a matter of time until the Federal Trade Commission (FTC) chairwoman, Lina Khan, resigns before President-elect Trump is sworn into office. One of my main predictions for 2025 is that mergers and acquisitions will see a comeback amid an improving macroeconomic picture and the high likelihood that leadership at the FTC changes under the incoming administration.
One company that I see as an attractive acquisition candidate is SoundHound AI (SOUN +0.58%), which specializes in voice-recognition assistants powered by artificial intelligence (AI). Below, I'm going to detail why speech recognition is an important component of the AI ecosystem, and explore why SoundHound AI looks like a logical acquisition prospect.
NASDAQ: SOUN
Key Data Points
Why is voice-powered AI so important?
Voice-enabled AI uses natural language processing (NLP) and machine learning to train devices to understand and process words and phrases. Common applications of this technology include Internet of Things (IoT) appliances such as smart thermostats or assistants like Amazon's Alexa.
The AI embedded in these tools can help you set reminders, obtain general information by asking a question, or even change the temperature throughout your home -- all by leveraging your voice and removing any manual or physical steps in between.
According to Statista, the global total addressable market (TAM) for speech recognition is estimated to reach $15.9 billion by 2030 -- slightly more than double what it is worth today.
While there is clear demand for AI-powered speech recognition, which businesses are actually investing in this technology? The answer may surprise you.
Image source: Getty Images.
What companies are investing in voice assistants?
In addition to Amazon, the companies listed below have invested significantly into AI voice assistants over the last several years:
- Alphabet: Similar to Amazon, it also has a line of smart-home products. The company's Google Home devices are essentially a direct competitor to Amazon's Alexa, while the company's smart-home products -- including speakers, thermostats, doorbells and locks, and much more -- are sold under its Nest brand.
- Microsoft: A couple of years ago, the company acquired a developer of AI voice recognition called Nuance for nearly $20 billion. Nuance gained traction in a few crucial end markets, but mainly focused on healthcare. For Microsoft, the deal represented an opportunity to leverage a new type of technology while also allowing the company to cross-sell its various services -- particular its Azure cloud computing infrastructure -- to major organizations already working with Nuance. Its partner OpenAI has also been experimenting with voice-powered AI tools. Although it's still early days, Microsoft appears to be well positioned in the speech recognition segment of the AI landscape.
- Apple: The company's primary foray into speech recognition is through its AI assistant, Siri. It's integrated throughout Apple's hardware products and can understand users' voices to answer questions and perform basic tasks such as scheduling. Several years ago, Apple also acquired Shazam, an app that can process musical lyrics and generate information including the artist, album, and song name.
- Nvidia: The company is perhaps the most peripheral player among big tech when it comes to voice recognition software. According to its 13F filings, Nvidia owns a small equity stake in SoundHound AI through an investment it made in the company when it was still private.
Why SoundHound AI makes a logical acquisition candidate
I see a few reasons SoundHound is an attractive acquisition candidate. First, the market for AI speech recognition is expected to grow considerably over the next several years. Furthermore, many of the world's most influential businesses have already invested significantly into this type of technology.
To me, SoundHound AI represents another stitch in the broader AI voice fabric -- and one that comes with some unique features.
It primarily focuses on business-to-business (B2B) end markets such as restaurants, hospitality, and automaking. However, the company also developed an app that competes with Shazam, and so it also has products that tackle a more business-to-consumer (B2C) opportunity as well.
SOUN revenue (quarterly) data by YCharts.
I find the trends detailed above quite interesting. SoundHound AI is witnessing impressive demand, but the company is yet to reach the scale needed to grow profitably. Considering that big tech is already investing heavily in voice-powered AI, I think it's safe to say that SoundHound AI is going to have trouble competing with these businesses given its limited financial horsepower.
The one drawback with SoundHound AI is valuation. At a price-to-sales multiple (P/S) of 46, the stock is far from a bargain. But with that said, the company's market cap is roughly $5 billion. For most logical acquirers, such a price tag isn't a problem.
These factors have me thinking it would be better off functioning within a larger organization with a more robust balance sheet. In other words, having access to the resources of larger businesses could potentially speed up SoundHound AI's progress considerably.
