The rapidly expanding artificial intelligence (AI) market is fueling growth among many tech companies, and SoundHound AI's (NASDAQ: SOUN) strong position in voice-enabled products and services is benefiting from the trend.
SoundHound's stock has soared more than 250% over the past 12 months (as of this writing), leaving some investors wondering where the company will be one year from now. So, let's take a closer look at what's happening with SoundHound and what investors might expect from the company in the coming year.
How SoundHound is doing right now
SoundHound has successfully expanded its business lately, moving into new conversational AI markets and boasting more than 200 enterprise brands using its tech, including Chipotle Mexican Grill, Qualcomm, and Stellantis' automotive brands.
The popularity of its voice AI platform is evident from the company's third quarter (which ended Sept. 30) results, in which revenue rose 89% from the year-ago quarter to $25.1 million, outpacing analysts' consensus estimate of $23 million. SoundHound's non-GAAP loss per share of $0.04 was an improvement from a loss of $0.06 in the year-ago quarter and ahead of Wall Street's expectation of a loss of $0.08.
Not only were the company's third-quarter results solid, but SoundHound's revenue growth is likely to continue. Management recently issued 2024 revenue guidance of $83.5 million for the full 2024 year at the midpoint and then increased to $165 million in 2025. That represents substantial year-over-year sales growth for the company and outpaces analysts' consensus estimate of $152.1 million in revenue for 2025.
SoundHound's opportunity and one word of caution
SoundHound is already successfully tapping into the AI market, and its momentum comes as large companies ramp up their AI spending. According to SoundHound's management, companies will invest an estimated $175 billion to $250 billion in AI enterprise spending by 2027.
This could provide SoundHound with new growth opportunities over the coming year and beyond. The company just closed on its acquisition of Amelia, giving it more avenues for conversational AI growth in finance, healthcare, and insurance that haven't been tapped fully into.
But there are two things investors should be cautious about with SoundHound right now. The first is that the company isn't profitable. The company's losses narrowed in the third quarter, and analysts estimate the company's loss per share will continue to improve from $0.38 in 2024 to $0.27 in 2025. That's good news, but it'll take time for the company to reach profitability.
More importantly, SoundHound's stock is relatively expensive right now. The company's shares trade at a price-to-sales ratio of 35.9, which is far above the S&P 500's average of about 3.1.
That doesn't mean SoundHound's stock doesn't have more room to run, but some of the company's future benefits from an expanding AI market are likely baked into its current share price. So, if you're bullish on the company's long-term opportunity, adding a small position now and buying more shares if there's a pullback in the stock price might be a good strategy.
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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill and Qualcomm. The Motley Fool recommends Stellantis and recommends the following options: short December 2024 $54 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
