SoundHound AI (SOUN +4.59%) stock soared 16% in a single session after earning a vote of confidence from investment banking and financial services firm Piper Sandler, which initiated coverage of the conversational artificial intelligence (AI) solutions provider with an overweight rating.
Analyst James Fish believes that SoundHound gives investors a solid way to capitalize on the fast-growing market for voice-based AI solutions. However, the analyst's $12 price target on SoundHound, which is in line with the median one-year price target based on the estimates of nine analysts, represents an upside of just 18% from current levels.
Does this mean it is too late for investors to buy this AI company? Let's find out.
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Scratching the surface of a massive market opportunity
The Piper Sandler analyst is of the opinion that SoundHound's serviceable addressable market could hit a massive $30 billion by 2027. To put things in perspective, the company's revenue in the trailing 12 months stands at just over $102 million. The good part is that SoundHound AI's incredible rate of growth tells us it is well on its way to making the most of the huge addressable opportunity on offer.
The company's top line shot up a remarkable 151% year over year in the first quarter. It is on track to finish the year with a top line in the range of $157 million to $177 million, the midpoint of which would be nearly double 2024's. What's worth noting is that SoundHound's annual revenue jumped 85% last year, so its growth is on track to accelerate in 2025 thanks to the strategic moves it has been making to corner a bigger share of the conversational AI market.
NASDAQ: SOUN
Key Data Points
The three acquisitions made by SoundHound AI in 2024 have helped the company bolster its product portfolio and enter new markets such as voice commerce while also opening cross-selling opportunities for the company. Management also points out that companies in the automotive and restaurant niches are opting to use voice AI solutions from smaller players such as SoundHound instead of big tech companies.
SoundHound attributes this trend to the greater flexibility it offers. Moreover, the company recently introduced a voice-based agentic AI platform that will allow customers to deploy voice-enabled autonomous agents that can reason and perform tasks on their own.
This is a smart move from the company, as the market for voice-based AI agents has taken off in recent months. Also, a voice-based agentic AI platform means that SoundHound has one more product to cross-sell to its existing customers. CEO Keyvan Mohajer says that its potential revenue "pipeline is the largest it's ever been and our TAM [total addressable market] continues to expand, giving us confidence that we have a massive opportunity to significantly grow our business for years to come."
SoundHound management estimates that its total addressable market stood at $140 billion last year. The company's revenue estimate for 2025 indicates that it does have a lot of room for growth, and its product development plus its entry into new verticals such as customer services, finance, and healthcare with recent acquisitions could indeed ensure that it keeps growing fast.
A potential concern
The biggest concern for anyone looking to buy SoundHound stock right now should be its valuation. The stock is trading at nearly 37 times sales. That's way higher than the U.S. technology sector's average price-to-sales ratio of 7.4.
SoundHound needs to keep growing at eye-popping rates to justify its valuation. The good part is that the company seems capable of doing that since it was sitting on a cumulative subscriptions and bookings backlog of $1.2 billion at the end of 2024. SoundHound says that this metric is a measure of the contracts it has signed and "gives a snapshot of the revenue we expect to realize over the coming several years."
However, the company adds that this is an incomplete measure since it has been landing new deals every quarter and the new products it is introducing are boosting its cross-selling and upselling opportunities. SoundHound plans to report this metric at the end of each financial year, but the size of the backlog at the end of 2024 suggests that it can easily outpace Wall Street's growth expectations.
SOUN Revenue Estimates for Current Fiscal Year data by YCharts
But even if it manages to achieve the revenue that consensus estimates are projecting in 2027 and trades at half its current sales multiple at that time, its market cap could hit $5.1 billion in the next three years. That would be a 26% jump from current levels. However, SoundHound could do better than consensus estimates, thereby maintaining a premium valuation and delivering stronger gains.
So investors looking to buy a growth stock might still want to consider accumulating SoundHound AI. It could soar higher in the future, thanks to the fast-growing market it is serving.
