Anticipated Surge: SoundHound AI's Shares Set to Reach new Heights in 2025
One artificial intelligence (AI) stock that's generating a lot of talk is SoundHound AI (SOUN, -5.54%). Despite the numerous reasons for the hype, it's important to note that SoundHound AI is rapidly expanding with a positive outlook for 2025.
Consequently, the stock could continue to deliver significant gains, and investors might want to keep an eye on it as they approach 2025.
SoundHound is enhancing voice recognition across various sectors
SoundHound AI essentially does what its name suggests: It combines AI with audio recognition. While integrating AI models with voice prompts has been a common practice, the recognition of voice inputs has always been mediocre at best, and the response quality was inconsistent.
However, SoundHound's platform is pioneering advancements in this field, and it's already seeing widespread adoption in certain sectors. For instance, in the food service industry, SoundHound's technology has outperformed humans in terms of speed and accuracy during phone orders or drive-thrus.
The automobile market is another sector where SoundHound has made significant strides. Through its partnership with Stellantis, SoundHound has introduced AI-powered chatbots that are far more advanced than the basic vehicle assistants found in most vehicles. Although this technology hasn't been introduced in the U.S. yet, it has been integrated into newer Stellantis vehicles in Europe and Japan.
There are numerous other applications for SoundHound's technology, and these opportunities form the basis of an enticing investment.
2025 is shaping up to be an excellent year
In the third quarter, SoundHound reported a remarkable 89% increase in revenue compared to the previous year, reaching $25.1 million. A year ago, the automotive industry accounted for 90% of SoundHound's revenue, but in the latest quarter, this sector represented only 25% of the revenue, with restaurants, financial services, insurance, and healthcare all contributing more significantly.
Despite being in its growth stage, SoundHound is not yet profitable. The company reported an operating loss of $33.8 million for the quarter, which is more than twice the revenue generated. However, unless SoundHound's growth slows down significantly, this loss is not yet a major cause for concern.
Luckily, management expects full-year 2024 revenue to range between $82 million and $85 million, representing more than a 75% increase from the previous year. Furthermore, management anticipates revenue to reach between $155 million and $175 million in 2025, partly due to its acquisition of Amelia, an enterprise voice AI company.
As a bonus, management expects to achieve positive earnings before interest, taxes, depreciation, and amortization (EBITDA) by the end of 2025. Given the bullish guidance, it's likely that the stock will surge if management can deliver on its promises.
Since SoundHound is not yet profitable, a popular valuation metric to consider is the price-to-sales (P/S) ratio. The stock currently trades at a pricey 29 times sales.
However, this valuation is not uncommon for the market's top AI stocks. For example, Palantir, one of the S&P 500's standout performers in 2024, trades at more than 55 times sales while growing revenue at a slower pace than SoundHound AI. It's worth noting that Palantir is a more established and profitable company.
In conclusion, investors should be aware of the risks associated with SoundHound's high valuation. Shareholders' expectations are high, and many of its business relationships are still relatively new and vulnerable to disruption. As a result, investors should adjust their position sizes according to the risks associated with a volatile growth stock.
If SoundHound can meet its financial targets, increase its customer base, and expand into new industries, it has the potential to continue its success streak. In fact, I wouldn't be surprised if SoundHound AI becomes one of the top-performing stocks in 2025.
In light of SoundHound AI's growing revenue and expanding sector presence, investors might consider allocating a portion of their financial portfolio for potential investing opportunities. The company's positive outlook, coupled with its AI-driven advancements in voice recognition, could potentially attract high returns by 2025.
As SoundHound AI progresses toward profitability, it's essential for investors to monitor the stock's performance and assess any risks associated with its high valuation, given its growth stage and new business relationships.
