Nvidia has been in wonderful form in the stock market over the past year, posting stunning gains of almost 207% at the time of writing. This is due to continued strong growth in revenue and operating income due to booming demand for its artificial intelligence (AI) chips.
However, there is another AI stock that has surpassed Nvidia in the market during this time. SoundHound AI(NASDAQ: SOUND)a small company that provides voice AI solutions to enterprises has witnessed a 256% increase in its stock price over the past year, and it’s worth noting that Nvidia has played a key role in the stock’s remarkable rally.
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Shares of SoundHound AI received a big shot in the arm earlier in 2024 when it emerged that Nvidia had a small stake in the company. Although SoundHound’s shares saw a lot of volatility and a sharp decline after that revelation, they have strung together impressive gains over the past six months.
But the question is: will SoundHound AI be able to continue its red-hot rally into 2025? Let’s take a look at the company’s latest quarterly results and its valuation to see what the year ahead could look like for this AI company.
SoundHound announced its third quarter 2024 results on November 12. The company’s quarterly revenue rose an impressive 89% year over year to $25.1 million, while its non-GAAP (adjusted) net loss fell to $0.04 per share from $0.06 per share in the same quarter. last year. Consensus estimates compiled by FactSet expected SoundHound to post revenue of $23 million, along with a loss of $0.07 per share.
The company’s guidance was the icing on the cake. While SoundHound did not issue quarterly guidance, it did raise its full-year revenue estimate. The company now expects to end 2024 with revenue of $83.5 million at the midpoint of its guidance range, up from its previous guidance of at least $80 million.
The updated revenue guidance would translate into an 82% increase in the company’s revenue. That would be a nice improvement over the 47% revenue growth that SoundHound AI posted in 2023, indicating that the company’s conversational AI solutions are gaining impressive traction in the market. In fact, it released a revenue guidance of $155 million to $175 million for 2025, suggesting revenue could grow faster next year and nearly double from 2024 levels.
SoundHound previously expected revenue of at least $150 million by 2024. However, it has started expanding into new verticals following the recently completed acquisition of Amelia, a company that provides conversational AI solutions to the insurance, healthcare and financial industries. SoundHound AI has already built a solid customer base in the automotive and quick-service restaurant (QSR) vertical markets, in fact Stellantis as a customer, and the great thing is that it continued to bring in new customers last quarter.
The company claims it provides its voice AI solutions to seven of the top 20 global QSR brands, has expanded into India to provide local language-based solutions for Kia cars, and has a new customer in the Middle East for electric vehicles (EV). East. All these developments explain why SoundHound AI expects its excellent growth to continue next year, but is it a good idea to buy the stock now after its stunning rise in 2024?
SoundHound isn’t currently profitable, so let’s take a closer look at its price-to-sales ratio to examine its valuation. The stock currently trades at 37 times sales, which is on the expensive side considering that Nvidia, a significantly larger company that dominates the AI ​​chip market, is trading at nearly identical sales levels and is on track to more than grow its sales double. turnover this year.
Meanwhile, SoundHound stock is much more expensive compared to the S&P500 index price-sales ratio of 3.1. At the same time, investors looking to buy this growth stock now should remember that it is prone to wide swings, as noted earlier in the article. The latest example of this was seen in the aftermath of the earnings report.
SoundHound AI stock fell 13% the day after its latest quarterly results. That might seem a bit surprising, considering it delivered a beat-and-raise quarter. Thus, SoundHound stock’s ability to sustain its stock market rally will depend on its ability to consistently deliver eye-popping growth and justify its expensive valuation.
However, analysts are not optimistic about the stock’s prospects for the coming year. The seven analysts covering SoundHound have an average 12-month price target of $7 for the stock, which suggests an upside of 7% from the current share price (at the time of writing). Therefore, investors looking for a mix of value and growth may be tempted to avoid SoundHound given its rich multiples.
But at the same time, investors with a higher appetite for risk and who are looking for a red-hot AI stock might still consider buying SoundHound AI given its stellar growth, as well as the fact that there are other, more expensive stocks that aren’t. is growing as fast as this voice AI company, but continues to benefit from the rapidly growing adoption of their AI offerings.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.
Nvidia has crushed this beautiful stock in artificial intelligence (AI) over the past year. Can it continue to rise in 2025? was originally published by The Motley Fool
