SoundHound AI (NASDAQ: SOUND) emerged as a top artificial intelligence (AI) stock to own this year after investors learned Nvidia had invested in the company. It was a big vote of confidence in the emerging voice AI business that the prestigious company invested in its operations. Many retail investors saw this as a sign that SoundHound might be the real deal and the next big AI stock to own.
But when SoundHound reported its earnings numbers, it didn’t exactly prove this was the next Nvidia, and some of that excitement has cooled. The company grew rapidly, but its operations were unprofitable and its growth depended on a particular sector of the economy (the automotive sector).
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In the company’s most recent earnings report, revenue numbers looked better and the company seemed more diverse. Does this mean it is less risky to invest in SoundHound? Could this be an ideal time to buy shares of this AI stock?
A major concern for investors is when a company is heavily dependent on a single customer. Not only does it mean that the company becomes dependent on how well that other company performs, but it can also imply that the products and services it offers are not as useful to other customers or adaptable to other types of businesses. That could pose big question marks, especially for a company like SoundHound, which is still in its early stages of growth.
In SoundHound’s third-quarter results to the end of September, the company once again generated fantastic revenue growth, with revenue rising 89% year-on-year to $25.1 million. But according to the company’s earnings report, the revenue increase was mainly due to SoundHound’s recent acquisitions of AI companies Amelia and SYNQ3.
SoundHound says its largest customer now accounts for 12% of revenue, compared to 72% in the same period last year. A year ago, 90% of sales came from the automotive sector, and now the company’s customer mix is ​​much more varied, with automotive, financial services, restaurants, healthcare and insurance each accounting for 5% to 25% of the top positions for their take into account. line. Here too, investors should be careful not to read too much into these results, given the major impact of acquisitions.
When SoundHound announced its acquisition of Amelia, a key advantage was that the company had a diverse customer base, including “hundreds of major enterprise brands.” By adding the company to its operations, SoundHound has technically diversified its customer base. However, it is difficult to say to what extent this diversification was a result of the company’s organic growth.
