It's been around two years since the launch of OpenAI's ChatGPT started the generative artificial intelligence (AI) hype cycle. Since then, industry leaders like Nvidia and Super Micro Computer have added billions to their market caps by providing enabling hardware.
However, consumer-facing AI software seems yet to reach its full potential. Let's explore why SoundHound AI (NASDAQ: SOUN) could be an excellent way for investors to bet on this side of the opportunity.
A business with obvious real-world utility
Despite its market cap of just $1.8 billion, SoundHound AI is not a young company. Founded in 2005, it has spent two decades working on speech recognition software designed to interpret human voices. This technology is highly synergistic with large language models (LLMs) because it allows the AI behind text-based chatbots to interact with humans in more real-world scenarios like drive-thrus and car infotainment systems.
SoundHound is particularly impressive because of its partnerships with mainstream consumer businesses. In July, the company rolled out its voice assistant with integrated ChatGPT in Stallantis vehicles in several European markets. This feature will allow drivers to ask general questions or help find destinations such as scenic routes or specialty restaurants.
Soundhound is also working with several fast-food chains like White Castle, Jersy Mike's, and Krispy Kreme, which are testing its voice assistants in their drive-thrus. These partnerships are a vote of confidence in SoundHound's speech recognition technology, and they could help it establish network effects and an economic moat in what could eventually become a highly competitive industry
An eye toward the future
SoundHound is not the only company working on voice recognition software and AI. In 2022, Microsoft purchased Nuance Communications (the company behind Apple's Siri) for $19.7 billion. And tech giants like Google and Amazon are also investing in the technology through in-house R&D. SoundHound is a relatively small fish in this big pond.
That said, SoundHound is working to create a unique niche by focusing on automotive and restaurant-related applications. Management has embarked on a slew of acquisitions to expand its competencies.
In June, SoundHound purchased Allset, an online ordering platform designed to connect restaurants with local consumers without third-party delivery apps. This deal follows last year's merger with SYNQ3 Restaurant Solutions, which boasts a portfolio of over 10,000 restaurants signed up for its voice AI services. According to management, these mergers will help bring SoundCloud closer to its goal of creating a "voice commerce ecosystem" that will likely synergize with cars, TVs, and smart devices.
Image source: Getty Images.
In March, hardware giant Nvidia invested $3.4 million in SoundHound stock. And the two companies are collaborating through Nvidia's autonomous driving solution 'Nvidia Drive,' where SoundHound will provide its voice-AI functionality.
Is SoundHound AI a buy?
For most investors, SoundHound's operating momentum is its most appealing characteristic. Second-quarter revenue jumped 54% year over year to $13.5 million, while operating losses increased 33% to around $22 million. Losses are normal for growth-oriented companies as they scale up their businesses. And with around $200 million on its balance sheet, SoundHound can sustain several more quarters of its current cash burn before needing to turn to outside sources of capital.
SoundHound's growing losses and unclear path to profitability may put off more risk-averse investors, and that is understandable. However, the stock remains a great way to add exposure to the software side of the AI opportunity as part of a diversified portfolio.
Should you invest $1,000 in SoundHound AI right now?
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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool recommends Stellantis and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
