SoundHound AI: A Potential July Buy?
Source: fool.com
There are many artificial intelligence (AI) stocks available, from over-hyped to undervalued. Investors need to find the best investments at good prices. One possibility for July could be SoundHound AI (SOUN).
SoundHound AI focuses on integrating speech recognition with AI models. The company is growing quickly. Its stock price has increased since its IPO, but it might not be as expensive as you think, given its expected growth rate. It has potential if it can maintain its current growth.
SoundHound AI: Speech Recognition
Speech recognition AI models have been around for a while. Models like Alexa and Siri are widely used, but they can be frustrating when they misunderstand. SoundHound AI's model is more accurate and has outperformed humans in some cases.
Bringing Human-Like Interactions
SoundHound AI aims to bring human-like interactions to digital encounters. Companies can save money by using SoundHound's agents for customer interactions. Currently, the software is mainly used in restaurant drive-thrus and vehicle digital assistants. However, other industries like healthcare and finance are starting to adopt it.
SoundHound AI Growth
SoundHound AI's growth rate in Q1 was 151% year over year. Management expects 97% growth for the year. If SoundHound AI can achieve and maintain this, it could be a top AI stock. However, investors should be aware of the risks. SoundHound is currently unprofitable as it focuses on gaining market share. Positive cash flows are still years away.
Valuation
SoundHound AI stock has a premium valuation, but it's not as high as expected for a company projected to nearly double its revenue in 2025. At 40 times sales, it's not cheap, but if it maintains its growth rate, this valuation could decrease significantly. The stock price reflects a little over a year's worth of growth, as software companies often trade between 10 and 20 times sales. For SoundHound AI to reach the higher end of that range, it needs to double its sales.
With projected growth for 2025 and a substantial revenue backlog ($1.2 billion at the end of 2024, compared to $85 million in 2024 revenue), SoundHound AI has several years of strong growth ahead. If it can't deliver that growth, the stock could face downside risk. Still, SoundHound AI could be a good addition to your portfolio.