Shares of conversational intelligence solutions player SoundHound AI (SOUN +4.73%) have soared more than 175% in the past three months (at the time of this writing). While the recent tech sell-off has affected the company's share prices significantly, it is nevertheless an exciting artificial intelligence (AI)-powered opportunity.
NASDAQ: SOUN
Key Data Points
The company's AI-powered voice systems are simplifying interactions between businesses and customers by using speech recognition technologies to understand and respond to natural human speech with minimal errors. These systems are being increasingly adopted in industries such as restaurants, automotive, healthcare, insurance, and banking to improve productivity while reducing costs.
Let's assess whether the stock can demonstrate robust growth momentum in 2025.
Rising adoption across industries
SoundHound AI has established itself as a major voice AI solutions player in the restaurant industry. The company has deployed its voice-enabled solutions in drive-thru, phone ordering, or other applications at more than 10,000 restaurants across three continents. The company has also partnered with seven of the top 20 quick-service restaurant (QSR) brands. Currently, major food chains such as Panda Express, Church's Texas Chicken, and White Castle Plus are using the company's solutions to improve processing and ordering speed, and for increased upselling and cross-selling opportunities.
The automotive sector presents another compelling growth opportunity for SoundHound AI. The company's technology is being increasingly deployed to power in-car voice assistants, especially by multiple electric vehicle (EV) manufacturers. The company has already signed deals with four EV manufacturers, with two already using it in real time on the road.
SoundHound AI's partnership with Stellantis has also played a pivotal role in increasing the company's penetration in the automotive sector, with its generative AI-enhanced digital assistant, SoundHound Chat AI, being implemented in seven of the latter's brands. SoundHound AI has also partnered with DayinTec, a leading Tier 1 automotive software supplier in China, to rapidly expand its presence in international markets.
Besides restaurant and automotive sectors, SoundHound AI's customer service portfolio is also seeing strong momentum in other sectors, such as healthcare and financial services.
The wide customer base has helped to dramatically reduce SoundHound AI's customer concentration risk. The company's largest customer contributed only 12% to its overall revenues in the third quarter, far lower than 72% a year ago.
Impressive financials
SoundHound AI has reported impressive financials in the recent quarter (Q3 of fiscal 2024). Revenues were up by 89% year over year to more than $25 million. The company is not yet profitable. However, this is nothing unusual, since many technology companies prioritize growth over profitability in the early stages of development.
SoundHound AI expects to reach revenues of $155 million to $175 million and EBITDA profitability by 2025. The company also boasts a strong balance sheet, with $136 million cash and $39 million in debt at the end of Q3. All this highlights the company's robust growth potential amid a clear path to profitability.
The recent sell-off is a buying opportunity
SoundHound AI's shares have seen a dramatic fall in the past few days, amid industrywide panic triggered by Chinese start-up DeepSeek releasing its open-source AI model, DeepSeek R1. The model is comparable to OpenAI's GPT-o in reasoning and math while costing 95% less. This has raised alarms about the strikingly high valuations of U.S.-based AI companies.
However, several prominent Wall Street analysts, such as Wedbush's Dan Ives and Laffer's Nancy Tengler, consider this tech sell-off to be a smart buying opportunity for retail investors. While cost efficiency is a key factor for large language models, accuracy is equally important. Although DeepSeek R1 has demonstrated impressive training efficiency, it continues to hallucinate and give inaccurate outcomes.
SoundHound AI's proprietary Polaris foundation model has been trained on billions of real conversations and over a million audio hours across dozens of languages over two decades. With a large amount of training data and a longer time frame, Polaris has managed to demonstrate superior accuracy, reduced human effort, and lower hosting costs compared to peers. The model also supports almost one-third of the company's AI interactions with restaurant customers. SoundHound is gearing up to use this model to power all its customer experiences in the coming months.
Subsequently, as the company's voice offerings are increasingly adopted across industries, the stock may rise again in 2025.
Valuation is expensive
SoundHound AI is currently trading at 75.4 times trailing 12-month sales, far higher than its three-year average price-to-sales ratio of 34.6. The valuation is undeniably expensive at first glance, especially since it is trading at higher multiples even compared to AI stalwarts such as Nvidia, Microsoft, and Meta Platforms.
Yet, it has been seen time and again that expensive high-growth stocks can remain highly priced for long periods -- as long as they have a competitive advantage and continue to grow at a rapid pace. Hence, considering SoundHound AI's diversified customer base, proprietary technology platform, and robust financials, the company seems like a smart pick in 2025.
