SoundHound AI (SOUN 2.60%) is a fairly popular stock considering that it's only a $5 billion company. But its small market cap is precisely why some investors are so excited about it. Finding stocks that are capable of turning reasonable investments into million-dollar positions isn't easy, and to achieve results like that, you generally must invest in them early, when they're smaller. It also helps if they're offering a product that's usable across multiple industries.
SoundHound AI fits those descriptions, but could a manageable investment in it really turn a person into a millionaire?
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Multiple industries are finding value in SoundHound's tools
SoundHound AI's platform combines audio recognition with generative AI. This allows it to simulate human-to-human conversational interactions -- a business that could have nearly endless possibilities. Two of the first areas where SoundHound AI's platform is seeing strong adoption are in restaurants and automotive digital assistants.
Taking food orders at restaurant drive-thrus and over the phone is a logical use of SoundHound AI's platform, as it reduces the need for staffing in an already lean industry. It isn't an easy application, as external noise can distort audio quality. However, SoundHound AI's platform consistently outperforms human workers in these tasks, making it a no-brainer software to deploy.
NASDAQ: SOUN
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Another area where SoundHound AI's software is being rolled out is as a digital assistant interface in vehicles, which allows these platforms to do more than just call someone when prompted. While this isn't an area that's easily monetizable, it could make people more comfortable talking with AI agents, making their integration in other areas more acceptable.
SoundHound AI is also finding clients in the financial services, insurance, and healthcare industries, where its tech is being used to supplement human customer service reps. These businesses employ a lot of people in customer contact roles, and if SoundHound AI's platform and generative AI can emulate them well enough to handle a significant fraction of those interactions, it could provide them with meaningful cost savings. SoundHound AI reported that during the third quarter, three of the world's 10 largest financial institutions purchased additional services from it, and it also signed a French insurance company to its platform. SoundHound AI is still near the beginning of its growth story, but the outlook for it is quite positive.
SoundHound AI could be an excellent investment
I'll set the threshold for a million-dollar stock at 100x returns -- that would transform a $10,000 investment into $1 million. From SoundHound AI's current market cap of $5 billion, that would require it to become a $500 billion company, about the size of megacaps Mastercard and ExxonMobil today.
For SoundHound AI to grow into that sort of behemoth, it's going to need to continue growing at its recent rates for quite some time. In Q3, its revenue rose 68% year over year to $42 million. That's impressive, and management claims that it can deliver organic growth of 50% or greater for the foreseeable future.
If SoundHound AI sustains that growth rate for five years, that would only result in its revenue rising around 659% -- a far cry from the 10,000% returns required to justify the stock growing 100-fold. SoundHound AI would need to capture even more market share and become an indispensable product in nearly every industry where its tools could be useful for it to deliver the required growth to become a millionaire-maker stock.
I think SoundHound AI can do it, but its success will hinge on the degree to which people are open to interacting with AI agents instead of actual humans. This important factor is completely out of SoundHound AI's hands, which concerns me as a potential investor. But if people accept its platform, I won't be surprised if SoundHound AI is one of the best-performing stocks in the next decade.
