Artificial intelligence (AI) stocks have skyrocketed in recent months, thanks to their potential to transform so many industries. There could be many winners, including companies that sell AI tools or use these tools to make their businesses more efficient. Investors who buy shares of these players can also win.
While many of these AI players have risen into the double and triple figures, some may still have plenty of room to run. We’re still in the early days of the AI ​​story, so an AI company that’s just ramping up its technology and attracting customers, for example, could see its stock rise as revenues start to rise.
This could be the case for an AI stock that Wall Street views with positive eyes. According to Wall Street’s average estimate, this particular player could rise 70% over the next twelve months. I’m talking about SoundHound AI (NASDAQ: SOUND), a specialist in voice AI that is already up almost 100% this year. Is it time to buy, or is Wall Street too optimistic?
SoundHound’s voice technology
SoundHound creates the technology that powers some of our everyday conversations, such as placing an order at a restaurant or vocally interacting with our cars. For example, Hyundai has integrated the company’s voice recognition system into some of its vehicles, allowing drivers to ask their car about the weather, sports or even how their favorite stocks are doing. And recently, SoundHound said it would go live in 100 White Castle drive-thru streets by the end of the year.
Today, the voice AI specialist is mainly active in the areas of restaurants and automotive, but the market opportunities are broad and SoundHound wants to focus on areas such as financial sector, healthcare and retail in the coming years. All this gives SoundHound a total addressable market of more than $160 billion by 2026.
SoundHound isn’t the only maker of voice AI, but it has some competitive advantages that could help it win in the long run. The technology, which is protected by more than 100 patents, translates speech directly into meaning. This makes it faster and more accurate than traditional systems that translate speech into text before determining meaning. The company’s technology also supports complex conversations, another feature that makes it stand out.
This voice AI innovator generates revenue through the placement of its products and services, but also sees the opportunity for significant revenue growth by receiving commissions when users of its products access various services – such as when a driver of a voice-activated car makes a ordering from a restaurant with voice control. That restaurant would pay a commission to SoundHound, and the company would share that commission with the automaker.
A solid order book
Today, SoundHound’s revenues are increasing and the order backlog is large. In the most recent quarter, revenue and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) each rose 80%. And the subscription and order backlog of $661 million is twice as high as the same period a year ago. SoundHound also reported an annual run rate of 3.5 billion searches, a 50% increase from the previous year.
It is clear that there is interest and demand for SoundHound’s products. Still, it’s important to remember that the company is small, with revenue of about $17 million in the quarter, so it still has a long way to go to reach profitability and other goals.
Let’s go back to Wall Street’s estimate. It’s entirely possible that SoundHound shares could rise 70% in just a year if the company continues to report solid revenue growth and order backlogs. The company has exciting technology, backed by many patents, and shows that customers are interested in the offering. However, since the company is not yet profitable, any setbacks along this path could worry investors and weigh on the stock price.
All of this means you should consider your investment style before joining Wall Street in its optimism about SoundHound. If you’re a cautious investor, you might want to watch from the sidelines for now and wait for the company to take further steps toward profitability. But if you can accept some risk and are looking for a potential growth story, consider buying some SoundHound shares today – an early entry into this promising AI player.
Should you invest $1,000 in SoundHound AI now?
Consider the following before purchasing shares in SoundHound AI:
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Adria Cimino has no positions in the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
This artificial intelligence (AI) stock could rise 70%, according to Wall Street. Time to buy? was originally published by The Motley Fool
