SoundHound AI (SOUN) has been making waves in the stock market in 2024, with the stock surging by an impressive 143% year-to-date. The driving force behind this remarkable growth can be attributed to strategic partnerships and breakthroughs in voice AI technology, as well as the seizing of financial opportunity. The company, which started with a music recognition algorithm, has progressed and, in recent news, announced that it would be acquiring Amelia AI, another leading provider of enterprise-level solutions based on artificial intelligence.
This acquisition has sparked substantial speculation among investors, as have the recent top-and-bottom-line beats for Q2. While the company exhibits promising long-term prospects, due to its high valuation and persistent unprofitability, potential investors may want to wait for a more favorable entry point.
SoundHound’s Growing Its AI Platform
SoundHound AI develops independent voice artificial intelligence (AI) solutions designed to create high-quality conversational experiences across multiple sectors, including automotive, IoT, and customer service. Its products range from the Houndify platform, which aids brands in building conversational voice assistants, to a suite of AI tools such as SoundHound Chat AI and Smart Answering.
Its automotive segment continues to thrive, with Peugeot, Vauxhall, Opel, Citröen, and Alfa Romeo implementing Soundhound’s Chat AI voice assistant across multiple markets and languages. SoundHound has also secured a new contract through its partnership with Stellantis, agreeing to provide the voice assistant for three Stellantis brands in Latin America.
Recently, SoundHound announced its acquisition of Amelia, another conversational AI company, for $80 million. Amelia specializes in providing conversational AI in customer service domains, notably healthcare, financial services, insurance, and hospitality. With the acquisition, SoundHound aims to leverage Amelia’s expertise and anticipates over $45 million in recurring AI software revenue by 2025, alongside additional non-software revenues.
SoundHound’s Recent Financial Results
The company recently reported its second-quarter results for 2024. Revenue of $13.46 million beat analysts’ estimates of $13.08 million, a 54% jump from the same period last year. GAAP gross margin for the quarter was 63%, with a non-GAAP gross margin of 67%. The company experienced an increase in its EBITDA loss, which stood at $13.85 million, up from a $10.08 million loss in Q2 of 2023. This drove earnings per share (EPS) of -$0.04, surpassing the consensus estimate of -$0.09.
At quarter-end, the company reported a cash balance of $201 million, and it prepaid $100 million of its debt – saving over $55 million in interest and fees.
Following the recent acquisition of Amelia, management has revised its financial forecast for 2024 and 2025. The company anticipates its total revenue for 2024 to surpass $80 million. Furthermore, its revenue projection for 2025 is set to exceed $150 million.
What Is the Price Target for SOUN Stock?
The stock has been on an upward trend, climbing over 102% in the past year. It trades near the middle of its 52-week price range of $1.49 – $10.25 and shows ongoing positive price momentum, trading above its 20-day (4.57) and 50-day (4.59) moving averages. With a P/S ratio of 25.85x, the stock appears richly valued compared to peers in the Software Application industry, where the average P/S ratio is 6.5x.
Analysts covering the company have been bullish on the stock. For instance, Cantor Fitzgerald analyst Brett Knoblauch recently upgraded the rating on the shares to Overweight from Neutral with a price target of $7, noting the “transformative” nature of the Amelia acquisition.
Overall, SoundHound AI is rated a Strong Buy based on five analysts’ recommendations and recently issued price targets. The average price target for SOUN stock is $7.50, representing a potential 45.35% upside from current levels.
SoundHound in Summary
SoundHound AI’s robust growth, new contracts with automotive brands, and Amelia’s anticipated contribution to AI software revenue by 2025 present an enticing prospect with promising long-term potential. However, investors may want to wait for a more favorable entry point, considering the stock’s current high valuation given the company’s lack of profitability.
