Nvidia (NASDAQ:NVDA) released its first 13F report on February 14th, revealing investments in other companies, sparking a firestorm. SoundHound AI (NASDAQ:SOUN), it recovered by a whopping 259%. Was Nvidia's filing that trigger? Or did it raise the stakes for new AI-themed targets for investors already working on Animal Spirits? In the case of SoundHounds, both I think it's a mixture.
Apart from SoundHound, ARM Holdings shares (NASDAQ:ARM) jumped to over 90%, and Nano X imaging (NASDAQ:NNOX) is up over 70%, and TuSimple Holdings (OTCMKTS:TSPH) shares are up more than 80%, and Nvidia's 13F filing mentions them.
Investors often look for companies that the market has missed the story or hasn't valued properly enough. They do so with the idea that a triggering event will arrive and market participants will reconsider, realize the error of their ways, and reward companies (and by extension investors) with healthier valuations. That's what you do.
SoundHound case study
SoundHound AI develops and commercializes voice, acoustics, and natural language artificial intelligence (AI) technologies and related activities. Notably, 90% of the company's current revenue comes from royalty payments per technology unit that uses voice AI capabilities, with the remainder coming from subscription fees that businesses pay to access voice AI capabilities. .
The company is currently working on integrating the NVIDIA DRIVE platform with in-vehicle voice assistants. This technology gives drivers access to SoundHound Vehicle Intelligence. SoundHound Vehicle Intelligence is a product that uses natural voice to instantly deliver information, from parsing your car manual to answering vehicle maintenance questions to pre-ordering food for pickup.
The company estimates that the total addressable market for these services will exceed $160 billion in 2026, with management predicting that each of its “three pillars” (loyalty, subscription, and monetization) will have a total addressable market of $1 billion. We expect the business to grow beyond the dollar value.
Financial results and future outlook
So far, SoundHound's results are promising. The company's revenue for the fourth quarter of 2023 was $17.1 million, an 80% increase year over year, and full-year revenue was $45.9 million, an increase of 47% year over year. The company reported a net loss of $0.07 for the quarter and $0.40 for the year, a significant improvement compared to the prior year (53% and 46%, respectively).
Additionally, the company expects full-year 2024 revenue to be between $63 million and $77 million, with an interim target of $70 million. Management also introduced a 2025 outlook in which it expects growth to accelerate, sales to exceed $100 million, and positive adjusted EBITDA.
What is the price prediction for SOUN?
SOUN stock is currently rated a Strong Buy based on 4 Buys to 1 Hold rating. The average price target for SOUN stock is $7.36, representing a 19.87% upside from current levels.
The stock is currently trading at $6.14, at the midpoint of its 52-week range of $1.49 to $10.25. It has pulled back slightly over the past few days, and technical indicators are mixed, suggesting further near-term volatility is possible.
However, recent price increases have placed the stock at a relatively large premium valuation. SOUN's P/S (price to sales) ratio of 30.67x is far below the averages for the technology sector and software applications industry (4.7x and 7.17x, respectively) and the company's historical average of his 14.5x .
Final thoughts about SoundHound
SoundHound is positioned to grow due to the explosive innovation generated by AI. The company currently has a 25% market share in its largest vertical and promising developments are underway.
But based on fundamentals, investors are paying a hefty premium for the privilege of participating in the AI ​​bubble. Certainly, enthusiasm could continue to drive stocks higher from here, but as we've seen in the past, when a bubble bursts, the air can escape quickly and valuations fall with it.
For long-term, tech-minded investors who love the story and can weather the inevitable volatility, the current price may not matter all that much. As a decidedly value-oriented investor, I'll be looking for opportunities to buy on the dip.