It has proven to be a remarkable year for SoundHound AI (NASDAQ: SOUND) investors, as shares of the artificial intelligence (AI) voice solutions company have risen a remarkable 272% at the time of writing.
However, the stock’s stunning rally isn’t entirely due to its impressive financial performance. SoundHound emerged early in the year after it emerged that this AI pioneer Nvidia had taken a small stake in the company. And it’s also worth noting that the stock has seen huge swings throughout the year.
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Investors may therefore be wondering whether this high-flying AI stock can maintain its red-hot momentum into 2025. Let’s take a look at SoundHound’s recent developments and try to predict how the stock will perform over the next twelve months.
Demand for SoundHound’s voice AI solutions has been growing at a healthy pace, with revenue in the first nine months of 2024 up 74% year over year to just over $50 million. Management expects full-year revenue of $82 million to $85 million.
Assuming SoundHound reaches the midpoint of its expectations, revenue growth for the year would be 82%, significantly higher than the 47% growth it achieved in 2023. Additionally, the company believes it will become profitable on an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) basis by the end of 2025. For context, the company posted an adjusted EBITDA loss of $15 in the third quarter, 9 million. 2024.
SoundHound’s dazzling growth can be attributed to the rapid adoption of its voice AI offerings. It offers customers a variety of voice-based AI solutions, including automatic speech recognition, natural language understanding and text-to-speech. The company has already built a solid customer base across multiple verticals such as automotive, restaurants, Internet of Things (IoT) and smart devices.
For example Hyundai, Stellantis, Hondaand Kia use SoundHound voice AI technology in their cars Qualcomm and Motorola implement their technology in smartphones. Restaurant chains use SoundHound solutions for online ordering and customer service.
And now, with the recent acquisition of business AI software provider Amelia, SoundHound is expanding its presence in the customer service space, where demand for voice-based AI solutions is growing at a nice pace. It is estimated that AI adoption in this area could grow by almost 24% annually over the next five years, generating annual revenues of $1.38 billion by the end of the forecast period.
SoundHound is doing the right thing by strengthening its customer service offering through Amelia, which should expand its reach in additional markets such as financial services, healthcare, insurance and retail. SoundHound paid $80 million for Amelia and expects to generate $45 million in recurring revenue from this acquisition next year.
With this acquisition, the company expects to generate between $155 and $175 million in revenue next year. That would nearly double this year’s outlook, meaning growth could continue to accelerate into 2025.
While management has an incredibly optimistic outlook, the six analysts covering SoundHound stock have given it an average 12-month price target of $8.50, according to CNN. That represents a gain of just 8% from where the stock is trading at the time of writing.
One reason why the average price target doesn’t show much upside through 2025 is because SoundHound is selling for 36 times more. That rich valuation indicates that the market has already priced in the excellent growth the company is delivering.
In any case, SoundHound will have to exceed market expectations in the coming year to justify its sky-high sales figures. Only then will the stock be able to offer meaningful upside potential in the coming year. After the excellent gains it has made so far in 2024, SoundHound AI seems only suitable for those with a higher risk appetite or, ideally, with a long-term investment horizon.
Consider the following before purchasing shares in SoundHound AI:
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Nvidia and Qualcomm. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.
Where will SoundHound AI stock be in 1 year? was originally published by The Motley Fool
