Over the past few years, abnormally high inflation combined with rising financing costs has prompted some companies to focus more on internal efforts and reject ideas about acquisitions or special projects.
But now that inflation is cooling and the Federal Reserve has started tapering interest rates, corporate balance sheets are strengthening.
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Furthermore, I believe it is only a matter of time before Federal Trade Commission (FTC) Chair Lina Khan resigns before President-elect Trump is sworn in. One of my top predictions for 2025 is that M&A will make a comeback amid an improving macroeconomic picture and the high likelihood of a change in leadership at the FTC under the new administration.
There is one company that I see as an attractive takeover candidate SoundHound AI(NASDAQ: SOUND)which specializes in voice recognition assistants powered by artificial intelligence (AI). Below, I’ll explain in detail why speech recognition is an important part of the AI ecosystem, and explore why SoundHound AI seems like a logical acquisition prospect.
Voice AI uses natural language processing (NLP) and machine learning to train devices to understand and process words and sentences. Common applications of this technology include Internet of Things (IoT) devices such as smart thermostats or assistants Amazon‘s Alexa.
The AI embedded in these tools can help you set reminders, get general information by asking a question, or even change the temperature throughout your home – all by using your voice and any manual or physical steps in between.
According to Statista, the global total addressable market (TAM) for speech recognition is estimated to reach $15.9 billion by 2030 – just over double what it is worth today.
While there is a clear demand for AI-powered speech recognition, which companies are actually investing in this technology? The answer may surprise you.
Image source: Getty Images.
In addition to Amazon, the companies below have made significant investments in AI voice assistants in recent years:
Alphabet: Like Amazon, it also has a line of smart home products. The company’s Google Home devices are essentially a direct competitor to Amazon’s Alexa, while the company’s smart-home products – including speakers, thermostats, doorbells and locks, and more – are sold under the Nest brand .
Microsoft: A few years ago, the company acquired Nuance, a developer of AI speech recognition, for almost $20 billion. Nuance gained ground in some crucial end markets, but focused primarily on healthcare. For Microsoft, the deal represented an opportunity to leverage a new type of technology while allowing the company to sell its various services (particularly its Azure cloud computing infrastructure) to large organizations already working with Nuance. Partner OpenAI has also experimented with voice-activated AI tools. Although it’s still early days, Microsoft appears to be well positioned in the speech recognition segment of the AI landscape.
Apple: The company’s most significant push into voice recognition is through its AI assistant, Siri. It is integrated into Apple’s hardware products and can understand users’ voices to answer questions and perform basic tasks such as scheduling. A few years ago, Apple also acquired Shazam, an app that can process musical lyrics and generate information including the artist, album and song name.
Nvidia: The company is perhaps the most peripheral player among the big tech companies when it comes to speech recognition software. According to 13F filings, Nvidia owns a small equity stake in SoundHound AI through an investment it made in the company when it was private.
I see a few reasons why SoundHound is an attractive acquisition candidate. Firstly, the AI speech recognition market is expected to grow significantly in the coming years. Furthermore, many of the most influential companies in the world have already invested significantly in this type of technology.
To me, SoundHound AI represents a new stitch in the broader AI voice fabric – and one that has some unique features.
It focuses primarily on business-to-business (B2B) end markets such as restaurants, hospitality and automotive manufacturing. However, the company has also developed an app that competes with Shazam, so it also has products that also leverage a more business-to-consumer (B2C) opportunity.
SOUN earnings (quarter) data by YCharts.
I find the trends described above quite interesting. SoundHound AI is witnessing impressive demand, but the company has yet to reach the scale needed to grow profitably. Considering that big tech is already investing heavily in voice AI, I think it’s safe to say that SoundHound AI will struggle to compete with these companies given its limited financial strength.
The only downside to SoundHound AI is its rating. With a price-to-sales ratio (P/S) of 46, the stock is far from a bargain. But that said, the company’s market cap is around $5 billion. For most logical buyers, such a price tag is not a problem.
These factors make me think that it would be better to function within a larger organization with a more robust balance sheet. In other words, having access to the resources of larger companies could significantly accelerate SoundHound AI’s progress.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions at Alphabet, Amazon, Apple, Microsoft and Nvidia. The Motley Fool holds positions in and recommends Alphabet, Amazon, Apple, Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
Prediction: This Artificial Intelligence (AI) Company Will Be Acquired in 2025 Originally published by The Motley Fool
