If you put $10,000 into SoundHound AI (SOUN -1.16%) stock one year ago, you have $61,800 today. That's an eyewatering return of 618%. The company has emerged as an early winner in artificial intelligence (AI) as it seeks to dominate the market for speech and audio-related AI solutions.
But past performance is no guarantee of future returns. Let's dig deeper into SoundHound AI's fundamentals to determine if its bull run can continue.
A clear business opportunity
So far, most sustainable AI-related growth has come from the infrastructure side of the opportunity, where chipmakers like Nvidia provide the hardware needed to run and train these algorithms. Software has been harder to monetize because it is still in an experimental stage. But that isn't stopping SoundHound from trying to push the envelope.
The company has been a leader in sound and audio technology since 2005, when it created a music recognition platform called Midomi. It went on to develop speech-enabled virtual assistants for cars before quickly recognizing the synergies between this tech and the generative AI of conversational chatbots like ChatGPT.
By combining speech recognition with large language models, SoundHound can help machines interact with people in a truly lifelike way.
The most exciting application of this tech might be in humanoid robots, which could soon be capable of holding conversations. But SoundHound has set its sights on less futuristic use cases like restaurant drive-thrus, customer services, and automotive assistants.
Image source: Getty Images.
Business is booming -- but so are losses
Soundhound's third-quarter revenue jumped 89% year over year to $25.1 million as clients gravitated toward its voice AI solutions. The company monetizes its tech through a software-as-a-service business model wherein the user gets access in return for a periodic fee. This strategy is attractive because it can lead to stable recurring revenue.
New clients include Mexican airline operator Grupo Aeroméxico, French financial services company BNP Paribas, and American nursing home operator Aveanna Healthcare Holdings, which shows that SoundHound's software is finding applications in a variety of industries. SoundHound is also driving growth through synergistic acquisitions like the $80 million buyout of Amelia AI, which operates an AI agent for backend business tasks.
The merger will give SoundHound more clients and could add $45 million to its expected revenue of $150 million in 2025.
But while SoundHound is expanding, its business looks far from profitable. Third-quarter operating losses jumped 132% year over year to $33.7 million. And while losses are normal for growth-oriented companies as they scale up, SoundHound doesn't seem to have a path to profitability right now, as losses are still rising dramatically. And the company will probably continue to burn money for the next few years.
Where will SoundHound be in the next 12 months?
Over the long term, SoundHound will have to scale up its business model and create an economic moat against competition. That's because speech recognition software is not a new technology. (It can be found in most mainstream smartphones.) And nothing is stopping other companies from synergizing this tech with generative AI.
One year is probably not enough time for SoundHound to build a moat or create a path to profitability. So investors are left betting on a speculative stock that probably won't hold on to its recent momentum.
That said, SoundHound's deals with major automakers like Stellantis and Hyundai Motor suggest its technology may have established an early lead. SoundHound is also backed by AI hardware giant Nvidia, which purchased around $3.7 million worth of its shares late last year. SoundHound's future looks bright. However, investors may want to wait for more information on its finances before considering a position in the stock.
