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Why SoundHound AI is a Promising Investment
SoundHound AI is rapidly emerging as a compelling investment opportunity. With its distinctive technology and strategic growth plans, the company presents a promising long-term outlook, despite the market fluctuations seen in 2024.
SoundHound AI’s Remarkable Progress
In its earlier days, SoundHound AI was a small company with ambitious goals. It partnered with nearly two dozen automakers and numerous consumer electronics companies, aiming to integrate its AI-powered voice controls into their products. However, annual revenues were modest, capping at $31.1 million, leading many investors to dismiss it as a speculative startup lacking a solid business plan.
Contrary to this perception, I viewed SoundHound AI as a seasoned company, boasting a two-decade operational history. The company recently embarked on an assertive expansion strategy, fueled by capital raised through a special purpose acquisition company (SPAC). This strategy was underpinned by a robust $332 million backlog of long-term contracts. Presently, SoundHound AI’s trailing sales have surged to $55.5 million, with the order backlog escalating to $682 million. The company is not only expanding its client roster but also making inroads into the food service sector, beginning to realize revenue from its substantial order book.
For instance, Stellantis, a major automotive player, has incorporated SoundHound AI’s voice controls into its new vehicles across Japan and Europe. This collaboration includes renowned brands such as Alfa Romeo and Citroën. Moreover, Stellantis’s version of Houndify integrates OpenAI’s ChatGPT chatbot. A North American launch is anticipated soon, likely to further boost SoundHound AI’s stock.
SoundHound AI’s ventures into the food service industry are still nascent, but it has already secured collaborations with well-known chains like Applebees, Chipotle Mexican Grill, and Five Guys. When placing orders via phone menus or drive-through windows at these establishments, customers may interact with SoundHound AI’s software bots.
SoundHound AI’s Path to Market Growth
SoundHound AI’s growth narrative is only beginning. Over the past year, the company has acquired several voice interpretation and AI analytics specialists, broadening its reach into the restaurant sector.
CEO Keyvan Mohajer emphasized the company’s clear vision for profitability during a recent earnings call, stating, “We own our tech. We have big data from real interactions and nearly 20 years of experience. This is why we are winning.” Mohajer outlined three pillars of growth: royalties from voice-enabled products, subscriptions from voice-enabled services, and monetization by connecting these services to products. As more notable clients are added each quarter, Mohajer anticipates mobilizing the third pillar, further accelerating the company’s growth.
The Long-Term Investment Case
Despite SoundHound AI’s lofty price-to-sales valuation ratio and negative earnings, the stock remains an attractive investment today. Purchasing shares now is a bet on sustained business growth, intricately linked to the substantial order backlog.
While it’s not entirely fair to assess SoundHound AI’s market cap solely by its backlog, given the seven-year horizon to realize the full contract value, the ratio stands at just 2.5 times the backlog or 17 times the average annual sales across the contract period. This valuation is relatively modest compared to other AI leaders like Nvidia and Palantir, which have price-to-sales ratios in the 30x range.
Thus, I believe it’s not too late to invest in SoundHound AI. With a current valuation of $1.7 billion, the company is poised to evolve into a multibillion-dollar AI powerhouse. Now is the opportune moment to establish a position in SoundHound AI before its stock takes off.
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