It's been a long journey for SoundHound AI (SOUN 5.50%). Founded in 2005, the company has worked for decades to assemble a voice AI platform that enables customized conversational experiences. It's powered by more than 200 patents, and major businesses including Honda and Oracle have already signed on as customers. This year, analysts expect sales to grow by nearly 90% and in 2026, another 25% sales growth is expected.
And yet somehow, SoundHound stock is down 50% in value since the year began. This stock is primed for a rebound, but there are a few risks you should be aware of before jumping in.
NASDAQ: SOUN
Key Data Points
SoundHound has an impressive AI business
The past five years have brought heavy revenue growth for SoundHound. Sales over that time period have risen by more than 370%. Looking ahead, analysts forecast more heavy growth in the year to come -- expectations that have risen wildly over the past half year.
What's driving all this growth? Demand for its voice AI suite, which helps companies incorporate AI into verticals like customer support, personal assistants, and product ordering. For example, SoundHound's work with Honda is to help Honda drivers engage with its vehicles more, like chatting with the car or truck about maintenance needs. The company's work with White Castle, for comparison, deals with drive-thru order windows, helping customers order faster, more accurately, and with less cost to the company.
SOUN Revenue (TTM) data by YCharts
Basically anywhere you might speak to a person or machine, SoundHound has a solution. That creates a balanced mix of end markets for the company, everything from automotive, restaurants, and financial services to healthcare and insurance sectors' customers.
The AI voice market is expected to reach nearly $50 billion in value by 2034, with annual growth averaging roughly 35%. With trailing annual sales of just $102 million, it's clear that SoundHound has a lot of room for potential growth. Shares are down 50% this year not because end market growth has lagged or because sales growth is expected to be low. Rather, shares dipped hard simply because they were already valued at nosebleed levels.
Before the decline, SOUN stock traded at an astounding 100 times sales. Now, shares trade at just 37 times sales. That's still expensive, but perhaps reasonable for such a small company targeting such a large opportunity. But there are a few important risks to consider before buying in.
Image source: Getty Images.
Don't invest in SoundHound before understanding these risks
SoundHound is a tiny competitor. That creates huge upside potential, but it also creates risks. Most of the company's competitors are significantly larger -- think Big Tech firms with deep pockets. Long term, it's not clear whether the company can actually compete with these well-financed businesses, especially considering its research and development budget over the past 12 months totaled just $80 million.
But it's not just competition. Investors will likely need to wait years for the company's hefty valuation premium to be justified. That should be no problem for long-term investors. With annual sales growth rates of 80% or more, even a 37 times sales valuation can become a steal, but that will take time.
SoundHound stock looks ready to rebound after the correction. But it's a long-term rebound that investors should be targeting, not a short-term spike. High-premium growth stocks like this can be very volatile, and investors should be ready for that even if they do commit to a holding period of several years or more.
