SoundHound AI Gains 27% in a Month: Should You Buy?

SoundHound AI SOUN shares have jumped 27.3% in the past month, outperforming the Zacks Computer & Technology sector's decline of 6.4% and the Zacks Computers – IT Services' growth of 5.2%.

SoundHound AI is benefiting from a strong portfolio, a strong partner base and an expanding clientele. SOUN offers conversational intelligence through independent Voice AI solutions in 25 languages in both cloud-enabled and hardware-embedded devices.

Its prospects benefit from a massive addressable market worth more than $140 billion that includes diverse industries like automotive, restaurants, customer service, entertainment, Smart TVs and Internet of Things (IoT) powered devices.

SoundHound AI had $682 million in cumulative subscriptions and bookings backlog at the end of the first quarter of 2024, up 80% year over year, with an average duration of about seven years. This reflects the strong demand for SOUN's solutions.

It expects revenues between $65 million and $77 million for 2024. The Zacks Consensus Estimate for SOUN's 2024 revenues is pegged at $71.01 million, indicating year-over-year growth of 54.8%. The consensus mark for 2024 loss is pegged at 30 cents per share, which has narrowed by three cents over the past 30 days.

SOUN Stock Beats Sector YTD

Year to date, SOUN shares have surged 133.5% year to date, outperforming the broader Zacks Computer & Technology sector's return of 16.5% and the Zacks IT Services industry's gain of 0.9%.

SoundHound AI has also outperformed industry peers like ServiceNow NOW, Infosys INFY and Vertiv VRT over the same timeframe. NOW, INFY and VRT shares have gained 13.1%, 23% and 52.1%, respectively.

YTD Performance

Image Source: Zacks Investment Research

However, SOUN stock is not so cheap, as the Value Style Score of F suggests a stretched valuation at this moment.

In terms of the forward 12-month Price/Sales ratio, SoundHound AI is trading at 18.14X, higher than its median of 8.85X and the Zacks Computer & Technology sector's 6.18X.

Price/Sales Ratio (F12M)

Image Source: Zacks Investment Research

SOUN Stock to Benefit From Expanding Footprint

SoundHound AI's prospects benefit from its expanding footprint in industries like automotive and restaurants, driven by its innovative portfolio. It has more than 270 patents currently, with over 155 granted and more than 115 pending.

Automotive presents a significant growth opportunity for SOUN. TAM for the global light vehicle auto market is currently pegged at roughly 88 million and is expected to hit 95 million units by 2028.

SOUN has strengthened its footprint in the automotive industry by introducing its advanced SoundHound Chat AI voice assistant, integrated with ChatGPT, into Peugeot, Opel and Vauxhall vehicles across 11 European markets, including Austria, France, Germany, Italy, Spain and the U.K.

SOUN's collaborations with NVIDIA, ARM, Perplexity, Olo and Oracle are expanding its portfolio. SoundHound AI launched an advanced in-vehicle voice assistant leveraging NVIDIA DRIVE, enabling real-time and generative AI capabilities for seamless, offline access to vehicle intelligence and personalized assistance.

SoundHound AI partnered with Perplexity to enhance SoundHound Chat AI through the integration of the latter's online Large Language Model capabilities for advanced, real-time voice assistant responses.

TAM for the restaurant market is currently pegged at roughly $3.3 trillion and is expected to hit $4.4 trillion units by 2028, thereby offering significant growth prospects for SoundHound AI.

SOUN partnered with Olo to bring its voice AI technology to approximately 77,000 restaurant locations, enabling high-speed, accurate order processing and enhancing the guest experience. It announced the integration of its Smart Ordering voice AI technology with Oracle MICROS Symphony point-of-sale (POS) for restaurants, enhancing order efficiency and customer experience in the hospitality industry.

SOUN's acquisition of SYNQ3 bolstered its presence in the restaurant sector, contributing positively to the revenue mix and customer base expansion. The acquisition of SYNQ3 added approximately $3 million to SoundHound's revenue in the first quarter of 2024.

The acquisition of key assets from Allset, an online ordering platform that connects restaurants with local customers, enhanced its capabilities in Voice AI.

Conclusion

SoundHound AI is a risky bet for growth-oriented investors, given the uncharted Voice AI domain. However, its innovative portfolio makes SOUN well-positioned to benefit from the strong TAM of global automotive and restaurant markets.

This Zacks Rank #1 (Strong Buy) stock has a Momentum Style Score of A, a favorable combination that offers a strong investment opportunity, per the Zacks Proprietary methodology.

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