Could SoundHound AI Become the Next Nvidia?
SoundHound AI (NASDAQ: SOUN) has become a popular artificial intelligence (AI) stock for several reasons. This article will explore its potential and what makes it stand out in the investment landscape.
Factors Driving Interest in SoundHound AI
It trades for around $5, making it accessible to many investors.
Nvidia (NASDAQ: NVDA) has invested in it, raising its profile among tech investors.
It’s a small company with a market cap of approximately $1.6 billion, providing significant growth potential.
The Nvidia Comparison
With these factors in mind, many investors wonder whether SoundHound could replicate Nvidia’s success. Although the comparison is intriguing, it is essential to note that SoundHound and Nvidia’s products are entirely different. So, is SoundHound stock poised for a sizable increase? Let’s explore further.
Innovation in AI and Audio Integration
SoundHound is at the forefront of developing products that combine audio and AI technologies. These products find practical applications in areas like drive-thru ordering and mobile services. By leveraging AI, businesses can enhance customer experience while optimizing workforce costs. SoundHound has already partnered with notable businesses to implement its technology; for example, it revamped the phone ordering system for Jersey Mike’s and improved White Castle’s drive-thru experience.
Enhancing Voice Assistants in Automobiles
An additional area where SoundHound’s technology is making waves is the automotive sector. Traditional voice assistants in vehicles have often been inadequate and cumbersome. To address this, SoundHound has collaborated with Stellantis to integrate ChatGPT into its offerings, thereby enriching the in-car audio assistant experience. This partnership also includes the implementation of SoundHound’s software on Nvidia’s GPU, which already has a generative AI model embedded within it, negating the need for a constant internet connection.
The Future Outlook for SoundHound AI
As we stand on the edge of understanding how AI will revolutionize our daily lives, examining the innovative efforts of companies like SoundHound serves as a valuable starting point. This excitement surrounding future possibilities contributes to growing investor interest in the stock, with many speculating it could be the next Nvidia.
Financial Performance and Revenue Growth
Despite its promising prospects, it’s vital to consider the current state of SoundHound as it remains a relatively small company generating limited revenue. In the last quarter, SoundHound reported an impressive 80% year-over-year revenue growth, although this figure only amounted to $17.1 million, which doesn’t entirely cover its $29.5 million in operating expenses—a situation often expected with smaller firms.
Order Backlog: A Closer Look
One critical component that investors focus on is SoundHound’s order backlog, which denotes future revenue from already signed long-term deals. If effectively executed, these partnerships could significantly increase SoundHound’s profitability. As of Q4, the company’s backlog stood at $661 million, doubling the figure from Q3 2023. This growing backlog is a strong incentive for investors to remain patient, even during market fluctuations.
Market Volatility and Stock Valuation
Recently, SoundHound’s stock has exhibited volatility, especially following Nvidia’s investment announcement. After the initial surge in price, it has normalized, now trading at around 27 times its sales. While this may appear elevated, the valuation could be justified if SoundHound successfully converts a substantial part of its backlog into actual revenues.
Investment Considerations
While SoundHound may present a compelling investment opportunity in the small-cap segment, it’s crucial to acknowledge the risks involved. If SoundHound’s products do not deliver as anticipated, or if a larger AI company develops superior technology, the potential for failure exists. Investors should be mindful of these risks but can manage their exposure through prudent position sizing.
Portfolio Strategy for Investors
It’s essential to recognize that not every position in an investment portfolio needs to be weighted equally. Investors can balance their portfolios based on risk and opportunity. Given SoundHound’s high-risk yet potentially high-reward profile, a suggested allocation would be around 1% of the overall portfolio. This approach allows investors to benefit should SoundHound achieve significant growth while minimizing the impact of losses on their overall investment.
Setting Realistic Expectations
SoundHound carries the potential to become the next Nvidia; however, it could also fail to make a significant impact. Investors must set realistic expectations and monitor developments closely.
Final Thoughts Before Investing
Before diving into a position in SoundHound AI, investors may want to consider this crucial point: The Motley Fool Stock Advisor analyst team has recently highlighted what they believe are the 10 best stocks to buy now… and SoundHound AI didn’t make the cut. The top picks are poised for possibly significant returns in the coming years.
Historical Context
Consider this fact: when Nvidia was identified as a top stock back on April 15, 2005, a $1,000 investment at that time would have grown to an astonishing $526,345!
Conclusion: Proceed with Caution
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