Nvidia invested in both companies late last year.
Soundhound AI (Thorn 5.77%) It was revealed that it was one of the four brands and attracted a lot of attention. arm holdings (arm 4.11%)that Nvidia (NVDA 6.18%) Invested at the end of last year. Nvidia took some of its deep cash and invested it in companies it thought would benefit greatly from the coming artificial intelligence (AI) revolution.
There is a big difference in size between SoundHound, which currently has a market cap of just over $1 billion, and Arm, which has a market cap of nearly $100 billion. Despite being about 100 times smaller than Arm, SoundHound shares some interesting similarities with the company.
Royalty income model
One of the characteristics that helped Arm get to where it is today is a business model that generates significant recurring revenue over long periods of time. The company licenses its technology to other companies, receiving upfront payments and then collecting royalties on each chip customers ship based on its architecture. This model has proven to be very durable, with nearly half of Arm's royalty income coming from products introduced before 2012.
SoundHound also derives much of its revenue from royalties. In fact, over 94% of his 2023 revenue came from product royalties. SoundHound's model allows customers to embed its voice AI platform into devices such as cars, third-party assistants, and smart TVs. SoundHound collects royalty payments based on the volume, usage, or lifespan of the applicable Products.
The company has also started selling the platform through subscriptions for use cases that don't come with a product. SoundHound has successfully penetrated its technology into the restaurant industry. The industry doesn't have a product to accompany their technology, so they sell their services as a subscription. This is another source of recurring revenue and can help make your business more predictable.
AI beneficiaries
Both Arm and SoundHound are also current beneficiaries of the AI ​​revolution. Arm expects growth to accelerate as new end devices such as smartphones require more of its technology built into central processing units (CPUs) to process AI applications.
Meanwhile, SoundHound has a growing backlog as AI rapidly moves from acceptance to expectation. Its technology not only allows voice assistants and humans to interact more naturally, but also enables more complex questions and answers.
The automotive industry is one of the driving forces behind adopting the platform. The company has relationships with more than 20 of his car brands. The restaurant industry has quickly followed suit, with the company signing deals not only with restaurant chains but also with restaurant-focused fintech companies. toast and Oro.
Soundhound and Arm are both partnered with Nvidia. Arm's technology is used in his Nvidia's Grace Hopper Superchip, which combines CPUs and GPUs to help process AI workloads faster while using less power. Meanwhile, SoundHound has partnered with Nvidia to develop an in-car audio platform that does not require an internet connection and runs on the Nvidia Drive platform. Examples of uses for this technology include retrieving information directly from a vehicle's user manual.
SoundHound is in its early stages
SoundHound hasn't generated much revenue yet, but the company is reporting a 47% increase in revenue to $45.9 million in 2023. However, what it actually has is a huge booking balance of $661 million. These are signed contracts that, if honored, translate into future revenue. The weighted average term of the company's contracts is approximately 6.5 years, resulting in average revenue of approximately $100 million per year over that period, based on the currently signed contracts alone. Some of this will be loaded on the backend, so we don't expect him to see $100 million in revenue next year, but the company is poised for solid revenue growth in the future.
Meanwhile, as AI becomes more integrated into everyday life, more automakers will seek to implement SoundHound's platform into their vehicles, and more industries will consider leveraging its technology. . We will continue to innovate and offer new products.
This gives SoundHound significant growth potential in the coming years. Will SoundHound grow to the heights of Arm? It's a difficult task, but it's possible. Arm has been able to incorporate its CPU architecture into almost all smartphones. If SoundHound's AI voice technology can be integrated into most smartphones, it could follow a similar path.
That said, SoundHound doesn't need to be the next Arm to be a successful stock investor. If the company continues to win in the auto and restaurant segments, and perhaps captures some of the high-end smartphone market, it could reap significant long-term benefits from this.