When tech titans take notice, the market listens. Find out how a modest investment boosted this AI expert’s long-term growth prospects.
Shares of SoundHound AI (SOUND) had increased dramatically this year. The artificial intelligence (AI) expert, who specializes in AI-powered voice control, has posted year-to-date gains of 122%.
Is there still room for further growth, or has SoundHound AI already peaked? Let’s find out.
Understanding SoundHound AI’s Recent Stock Performance
This isn’t even the top of SoundHound AI’s stock chart mountain. Share prices rose to $8.91 per share in March. At its current price of about $4.70 per share, the stock is down 54% below that top.
I admit that the March rush was speculative. I’m sure you already know that AI hardware giant Nvidia (NVDA 1.69%) inspired that leap by announcing a small investment in the voice interpreting specialist. Nvidia only bought $3.7 million worth of SoundHound AI stock in 2023, but that disclosure still more than tripled stock prices when the purchase was announced in mid-February.
The purchase was notable because Nvidia does not often buy shares of other companies. Furthermore, SoundHound AI investors were hoping that this could be the harbinger of a larger stock purchase in the future, or perhaps an outright takeover of the entire company.
None of these ideas have materialized, and SoundHound AI stock has cooled dramatically. However, the Nvidia investment put this company in the Wall Street spotlight in a whole new way. Additionally, SoundHound AI announced a development partnership with Nvidia a few weeks later. The companies have already presented a voice-controlled large language model (LLM) that can manage the in-car systems of the Nvidia Drive platform without even connecting to the Internet.
Nvidia’s role in SoundHound AI’s bouncy stock moves
So there was some substance to the Nvidia-based speculation, but not quite the all-in investment that the most optimistic SoundHound AI investors had hoped for.
At the same time, the company is in an excellent position to achieve enormous sales growth in the coming years. Its customer list is growing longer and richer, expanding from the automotive industry to restaurant chains and healthcare systems. Houndify’s voice interaction system can figure out what you mean to say in a noisy environment, put your words in context, and still perform the advanced analysis in real time. There are other speech-to-text systems, but SoundHound AI solutions stand head and shoulders above the rest thanks to decades of experience.
Don’t miss SoundHound AI’s huge order book
The increasing interest in SoundHound AI’s voice control is creating a huge backlog of outstanding orders and long-term contracts. That’s not my idea, but it’s a solid number that the company reports on every quarterly earnings call.
The backlog was $723 million in the latest report, compared to $339 million a year ago and $283 million the year before. The order volume is not just increasing speed up. And the average contract length is “just under seven years,” compared to 6.5 years in the summer of 2023. Those customers sign up for longer contract commitments over time.
These guaranteed sales figures are impressive for a small-cap company with just $55.5 million in revenue over the past twelve months. SoundHound AI’s revenue should skyrocket as the company receives revenue in exchange for services provided over the next seven years. And don’t forget that the backlog is also increasing.
Future ambitions and market expansion
As you can see, SoundHound AI has a lot of growth catalysts in store, and I expect big things from this high-octane growth stock. Meanwhile, the company is expanding its profit margins as it pursues new target markets. In the long term, SoundHound AI management wants to “delight” end users on billions of voice-enabled devices and outperform real humans when it comes to understanding what the user is asking for.
The long-term vision is of course a work in progress. It will take time to realize these functions, especially on a global scale. But the ambition is there, and I don’t think SoundHound AI will be a small-cap stock for much longer. The stock looks like a great buy in the fall of 2024, and I can’t wait to see it evolve over the next few decades.
Anders Bylund holds positions at Nvidia and SoundHound AI. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.