This company’s exciting technology is protected by more than 100 patents.
Artificial intelligence (AI) stocks have skyrocketed in recent months, thanks to their potential to transform so many industries. There could be a lot of winners, including companies selling AI tools or using these tools to make their businesses more efficient. Investors who buy shares of these players could score a win, too.
Even though many of these AI players have increased in the double and triple digits, some still may have plenty of room to run. We’re in the early days of the AI story, so an AI company that’s just ramping up its technology and signing on customers, for example, could see its stock climb as revenue starts to take off.
This may be the case for an AI stock that Wall Street sees with a favorable eye. This particular player could soar 70% over the coming 12 months, according to the average Wall Street estimate. I’m talking about SoundHound AI (SOUN -3.84%), a specialist in voice AI that’s already climbed nearly 100% this year. Is it time to buy, or is Wall Street too optimistic?
Image source: Getty Images.
SoundHound’s voice technology
SoundHound creates the technology powering some of our daily conversations, such as placing an order at a restaurant or interacting vocally with our cars. For example, Hyundai has integrated the company’s voice recognition system in some of its vehicles, offering drivers the ability to ask their cars about the weather, sports, or even how their favorite stock is doing. And just recently, SoundHound said it would go live in 100 White Castle drive-thru lanes by the end of the year.
Today, the voice-AI specialist operates mainly in the areas of restaurants and automobiles, but the market opportunity is broad, and SoundHound aims to address areas such as financial, healthcare, and retail industries in the coming years. All of that offers SoundHound a total addressable market of more than $160 billion by 2026.
SoundHound isn’t the only voice-AI creator around, but it holds some competitive advantages that could help it win over the long run. Its technology, which is protected by more than 100 patents, takes speech and translates it directly into meaning. This makes it faster and more accurate than traditional systems that involve translating speech into text before meaning is determined. The company’s technology also supports complex conversations, another feature that helps it stand out.
This voice-AI innovator generates revenue through the placement of its products and services but also sees the possibility for significant revenue growth through taking commissions when users of its products access various services — such as when a driver of a voice-enabled car places an order at a voice-enabled restaurant. That restaurant would pay a commission to SoundHound, and the company would share that commission with the car manufacturer.
A solid order backlog
Today, SoundHound’s revenue is on the rise, and the backlog of orders is strong. In the most recent quarter, revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) each climbed 80%. And the subscriptions and orders backlog of $661 million is up by 2x from the same period a year ago. SoundHound also reported an annual run rate of 3.5 billion queries, for a 50% increase from the previous year.
It’s clear that there’s interest in and demand for SoundHound’s products. Still, it’s important to remember the company is small, with about $17 million in revenue in the quarter, so there’s a long way to go to reach profitability and other goals.
Let’s get back to Wall Street’s estimate. It’s very possible SoundHound stock could soar 70% in just a year if the company continues to report solid growth in revenue and order backlogs. The company has exciting technology, backed by many patents, and is showing that customers are interested in its offerings. Since the company isn’t yet profitable, though, any hiccup along the path could worry investors and weigh on the stock price.
All of this means it’s best to consider your investment style before joining Wall Street in its optimism about SoundHound. If you’re a cautious investor, you’re better off watching from the sidelines for now and waiting for the company to make additional steps toward profitability. But if you can accept some risk and are looking for a potential growth story, consider picking up a few SoundHound shares today — to get in early on this promising AI player.
