SoundHound AI Stock: Hard to Value — but Still Valuable

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When a business isn’t currently profitable, it may be difficult to assign a value since a company without earnings won’t have a price-to-earnings (P/E) ratio. Thus, when it comes to a company like SoundHound AI (NASDAQ:SOUN), prospective investors must find other ways to evaluate it.

More accurately, investors should consider what the company might be worth in a year, five years or longer. That’s particularly the case with SoundHound AI since artificial-intelligence (AI) stocks tend to be measured according to the expected growth of generative-AI adoption.

This makes valuing SoundHound AI all the more challenging, but at least there’s recent data to consider. At the end of the day, forward-thinking investors may be willing to forgive the company for its current lack of profits — if they envision continued growth in the coming quarters.

A specific and possibly untapped AI niche

The gen-AI movement of the past couple of years started with high-school students figuring out that they could use OpenAI’s ChatGPT website to instantly produce essays that would pass plagiarism checkers. It wasn’t long before practically every big business began to feel the need to integrate generative AI and brag about it on their conference calls.

Almost immediately, stock traders began looking for niche AI-market beneficiaries. They identified NVIDIA (NASDAQ:NVDA) stock as the perfect play because all of these new gen-AI applications would require powerful processors.

That’s old news by now, but there’s still a possibly untapped niche-AI industry to look into. I’m not claiming to be Magellan or anything, but I feel like the market hasn’t really discovered voice-activated AI yet. The most obvious and direct play for investors in this burgeoning niche market is SoundHound AI stock, which specializes in voice-activated AI.

Two uses for voice AI are in vehicles and in internet-ready household objects (also known as the Internet of Things, or IoT). For example, in March, SoundHound AI partnered with global automaker Stellantis (NYSE:STLA), which is based in the Netherlands. By using SoundHound AI’s automotive voice assistant integrated with ChatGPT’s gen-AI technology in Stellantis’ vehicles, the two companies collaborated on introducing cutting-edge automotive AI-voice capabilities in Japan.

Earlier this month, SoundHound AI teamed up with conversational AI-powered answer-engine provider Perplexity. Through this partnership, Perplexity will bring its online large language model (LLM) capabilities to the SoundHound Chat AI voice assistant for use in automobiles and IoT devices.

This is all very exciting, but bear in mind that SoundHound AI remains highly speculative. Yes, there will probably be gen-AI voice capabilities in all newly manufactured cars in the near future. SoundHound AI could be the first to market, especially given its collaboration with Stellantis. However, it’s difficult to know if and when this will occur and, just as importantly, whether it will translate to quarterly profits for SoundHound AI.

Revenue on the rise, but income is elusive

Let’s see where the data takes us. SoundHound AI’s first-quarter financial press release is still fresh, and there’s one data point that definitely stands out.

Impressively, the company grew its revenue 73% year over year to $11.594 million. One can’t blame SoundHound AI Chief Financial Officer Nitesh Sharan for engaging in some bragging after such a powerful first-quarter sales print.

“We were pleased to start the year with a robust top-line performance in our strongest Q1 ever,” Sharan stated.

This doesn’t mean SoundHound AI’s financial picture is perfect in every way, however. On an adjusted, non-GAAP basis, SoundHound AI reported a first-quarter net loss of $19.884 million or 7 cents per share. That’s compared to a net loss of $17.141 million or 8 cents per share in the first quarter of 2023.

It may bother some investors to discover that SoundHound AI isn’t currently income-positive. Yet, this is a common theme among start-up businesses involved in emerging niche technologies. It’s expensive to operate a pioneer business, and the risk of running out of capital simply can’t be ignored.

On the other hand, SoundHound AI stock could eventually double, triple or more if voice-activated AI technology becomes commonplace.

For instance, the company noted, “Applebee’s has expanded its use of voice-AI ordering across multiple franchisees.”

In other words, there’s just no telling where you might see and hear SoundHound AI’s products. Therefore, if you’re not a stickler for profitability in the near term, it’s not a terrible idea to buy a few shares of SoundHound AI stock while they’re still under $6.

Disclaimer: All investments involve risk. In no way should this article be taken as investment advice or constitute responsibility for investment gains or losses. The information in this report should not be relied upon for investment decisions. All investors must conduct their own due diligence and consult their own investment advisors in making trading decisions.