Shares of voice control innovator SoundHound AI (NASDAQ: ZOE) brought to life in the spring of 2024, as a giant in the field of artificial intelligence (AI) Nvidia (NASDAQ: NVDA) a rare investment in the stock revealed. But the high jump didn’t last long. As of July 1, SoundHound AI’s stock price is down 56% from its early March peak.
However, I see no reason to despair over the recent price drop in SoundHound AI. Rather, it is a welcome price correction that gives growth investors a chance to pick up a few shares on the cheap.
What SoundHound AI does
SoundHound AI is all about speech AI and conversational intelligence technologies that are becoming as crucial as Wi-Fi in a coffee shop. Many companies are exploring this universe, but SoundHound AI started building a unique technology platform when smartphones still felt new and fresh. Its speech analytics is powered by advanced AI tools, refined over the years based on billions of caller ID and phone menu interactions.
And it’s more than just a cool tech demo. SoundHound AI has a backlog of $682 million worth of long-term contracts, with regular clients ranging from automakers and consumer electronics giants to restaurant chains and customer service call centers.
That’s a lot of contracted promises waiting to be converted into revenue, and the market seems to be lulling itself to this fact. SoundHound AI stock should start to rise as the backlog is converted into real revenue streams.
Strategic Moves of SoundHound AI
The company isn’t resting on its laurels either. In fact, SoundHound AI has been busy making potentially groundbreaking moves in recent months.
On June 10, SoundHound AI paid off the last of its $100 million in debt. The move saved the company more than $55 million in interest and fees, freeing up $14 million in restricted cash. With $180 million in cash and no debt, it’s poised to seize new opportunities.
Less than two weeks later, on June 20, the company acquired key assets of online ordering platform Allset, a strategic move to build a voice-enabled e-commerce empire. Imagine ordering your favorite cheeseburger by simply speaking to your car or using your smart TV from the comfort of your couch. SoundHound AI’s voice control capabilities combined with Allset’s expertise in foodservice give consumers a whole new range of options for easily grabbing some wings or pizza slices.
And finally, on June 27, SoundHound AI converted its entire class of preferred stock into common stock. It’s not a huge game-changer, since the 475,000 preferred shares are a drop in the bucket compared to the 217 million Class A shares. Still, the move simplifies the company’s capital structure and eliminates preferred stock. It also removes the requirement to pay quarterly dividends to preferred shareholders, which amounted to $343,000 in the most recent quarter. That’s handy for a small company with a big appetite for more cash to fuel its long-term growth ambitions.
Why SoundHound AI is a Smart Buy Now
Yes, SoundHound AI is still operating at a loss, and its valuation multiples may raise an eyebrow. Shares are trading at 25.3 times trailing sales, and earnings multiples are completely ridiculous. But with nearly $700 million in backlog and strategic moves that would make a chess grandmaster proud, the future looks bright. SoundHound AI’s recent actions show it’s serious about growth, and it has the financial muscle to back it up.
Sure, there may be some bumps along the way, but the potential rewards make it all worth it. SoundHound AI’s innovative speech technology and significant backlog suggest that this is just the beginning of its growth story. For those who like a little excitement and can handle a few twists and turns along the way, SoundHound AI could be your ticket to impressive returns. And the stock’s nearly 50% drop seems like an invitation to buy today.
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Anders Bylund has positions in Nvidia and SoundHound AI. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
1 Growth Stock Drops 56% to Buy Now was originally published by The Motley Fool
