The race is on for companies to entrench themselves as leaders in artificial intelligence (AI), arguably the most significant technological leap since the internet's early years in the 1990s. This goes far beyond the screen you're reading this on. SoundHound AI(NASDAQ: SOUN) is changing how we speak to technology and how it talks back.
This company, not even worth $2 billion today, wants to dominate a market it estimates is worth $140 billion.
Success could mean life-changing returns for early investors. They are rare, but unicorn investments like Amazon, decades ago, have gone on to turn modest sums into fortunes.
SoundHound AI could do the same for investors over the coming years.
SoundHound's place in a competitive field
At their core, ChatGPT and other large language models process data-based prompts. You type in a prompt, and the model will translate it to data and code, process it, and then respond accordingly. Voice-based artificial intelligence is tricky because it adds an extra layer of complexity. Speech can't directly translate to code. It must be translated from audio to text first, meaning the model must understand what it hears literally and contextually.
SoundHound AI's voice AI technology is based on nearly 300 granted and pending patents and over 15 years in the industry, which management believes gives it a data edge over its competitors. The company's primary end markets have been the restaurant industry (voice-based ordering) and the automotive industry (hands-free commands in vehicles).
It's a little intimidating when a $1.7 billion company competes with multi-trillion-dollar behemoths, but that is where SoundHound AI finds itself. The company's primary competition uses voice AI technology but for different applications. For example, Apple uses similar technology for its Siri voice assistant and owns the music-listening app Shazam. Amazon and Alphabet have developed voice AI technology for their smart home devices.
SoundHound AI's investment potential will depend on how much it can expand into new applications. Only time will tell if these big technology companies push harder to do the same or if they run in separate circles.
Expansion is already underway
SoundHound AI's expansion efforts are well underway. The company has announced two acquisitions over the past few months:
- Allset is an ordering platform that could enable voice food and beverage orders across vehicles, phones, and smart devices.
- Amelia is a conversational AI company for enterprises with nearly 200 customers across various industries.
The company didn't disclose the terms of the Allset acquisition, while it will fund the Amelia deal with $80 million in cash and stock. SoundHound AI estimates that the acquisitions will lift the company's 2025 revenue to an estimated $150 million, up from the $55 million generated over the past four quarters.
Acquisitions have pros and cons. These deals bring instant growth, help SoundHound AI access new market segments, and expand its customer base. At the same time, acquisitions always carry risks because the acquiring company must effectively put all the pieces together.
Seeing how the company grows beyond 2025 will tell investors a lot. For now, the revenue leap is a clear positive.
A speculative stock at a reasonable price
It's still so early that the market hasn't valued SoundHound AI differently since the acquisition announcements. The company's enterprise value is roughly $1.5 billion, the same as in April. Assuming SoundHound AI delivers on its 2025 revenue estimate, the stock trades at an enterprise value-to-sales ratio of 10 times next year's revenue.
Several technology companies are trading above and below that mark across Wall Street. Frankly, that seems reasonable. SoundHound AI has lots of potential but a cloudy trajectory while all these moving parts settle, so a middling valuation makes total sense for the stock until the market knows more.
SOUN Enterprise Value data by YCharts
So, can SoundHound AI grow enough to make investors life-changing wealth?
Absolutely.
This is a reasonably priced $1.7 billion stock in a $140 billion addressable market. SoundHound AI is still small enough that it doesn't need to dominate to produce great results for long-term investors. Becoming a notable player in the space could be good enough, which means it could theoretically, at least, coexist with the big technology companies it competes with.
Will this all play out as hoped?
Only time will tell.
It will fall on whether SoundHound AI can execute, which means integrating acquisitions, successfully selling into new markets, and organically growing its business over time. There is enough potential upside to make the stock interesting, but it's still very early. A lot could go right (or wrong), so keep that in mind.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, and Apple. The Motley Fool has a disclosure policy.
