I’ve written a lot about it SoundHound AI (NASDAQ: SOUND) this year. In early 2024, the company secured a multimillion-dollar investment Nvidiathe world’s largest provider of graphics processing units (GPUs) for artificial intelligence (AI). I believed this partnership was a huge vote of confidence for what was then a relatively small AI company.
A lot has changed in recent weeks. Since the beginning of November, SoundHound’s shares have increased in value by approximately 217%, adding billions of dollars to its market capitalization. Could the company implement a stock split in 2025? The answer to this question may surprise you.
AI is perhaps the hottest category on the market right now. Nvidia, one of the industry’s top suppliers, is the second most valuable company in the world. The stock prices of most AI companies have soared in the first few quarters of 2024. Somehow, SoundHound stock has flown relatively under the radar. Shares rose in the first quarter of the year after Nvidia unveiled a $3.7 million investment in the company. But stock prices quickly cooled, meaning there was no meaningful run for the rest of the year – until now.
What caught the market’s attention? Perhaps the company’s small market cap—the entire company was valued at less than $2 billion in early November—ultimately turned into an asset. There simply aren’t that many small, publicly traded AI companies anymore. SoundHound’s relatively small size may have allowed it to fly under the radar, but those days appear to be over and the company is now valued at more than $5 billion.
However, the biggest factor in SoundHound’s recent explosion is likely a big increase in revenue growth expectations. This summer, quarterly revenue growth figures fluctuated around 50%. Today, those expectations have nearly doubled to 96.7%. That’s a huge difference that should mean two things. First, SoundHound likely deserves a higher price-to-sales (P/S) ratio than before when expectations were lower. And second, the company may have a bigger and longer growth trajectory ahead of it than most analysts realized.
As the name suggests, SoundHound is involved in bringing the magic of AI to the world of sound. It has signed deals with fast-food restaurants to streamline their ride-hailing systems, with consumer products companies to provide customer support, and with several automotive brands to provide voice recognition and AI assistants to drivers. Research shows that this market is growing between 15% and 20% per year. But SoundHound’s growth rates are well above industry levels, indicating that the company has superior technology and market fit to its competitors.
Right now, SoundHound’s biggest competitors may be Big Tech companies, most of which are developing their own voice AI platforms. But with several hundred patents, plus decades of operating experience, it’s reasonable to foresee one of these Big Tech companies acquiring SoundHound and integrating its patents into its own tech stack. The purchase price would be small compared to the purchasing power of these companies. And SoundHound clearly has something customers want now. In these early days of AI, SoundHound is on a promising trajectory.
SOUN PS Ratio data by YCharts.
SoundHound clearly has a promising business future, even though its share price trades at a lofty 63 times sales. If sales continue to double every year, that expensive multiple could be worth it. Time will tell.
But what about a stock split? Is there one around the corner for this hot stock? Probably not. Even after the recent surge, shares are still trading between $10 and $15 – not nearly high enough to normally warrant a stock split. However, if the company maintains its valuation and growth rates, a stock split could happen in a few years. But for now, a stock split in 2025 is highly unlikely.
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
This artificial intelligence (AI) stock is up 217% since November 1. Should Investors Expect a Stock Split in 2025? was originally published by The Motley Fool
