SOUN Stock: Can SoundHound Corner the AI Voice Market?
Shares in SoundHound AI [SOUN] tumbled last week following its Q3 earnings, but the company is confident that it will be at the forefront of the human conversation revolution.
SoundHound AI [SOUN] is a California-headquartered company founded in 2005 that provides artificial intelligence (AI) voice technology.
Businesses use SoundHound AI’s platform to offer their customers natural conversational experiences. For example, they can ring up to order a pizza as if they were talking to a person.
Sectors that SoundHound AI serves include automotive, hospitality, healthcare and insurance.
Alongside the likes of Amazon Web Services [AMZN], Nvidia [NVDA] and OpenAI, the firm has been named by MarketsandMarkets as a leader in AI voice generation.[i] Growth in the AI voice generator market is expected to accelerate in the coming years, growing in value from $3bn in 2024 to $20.4bn by 2030.
This stock spotlight will discuss how SoundHound AI is positioning itself for dominance in the market. It will also look at the company’s recent financial performance and highlight the tailwinds and headwinds that may affect SOUN stock in the near term.
SoundHound AI Expands Stellantis Partnership
On October 17, SoundHound AI announced that its voice assistant, SoundHound Chat AI, has been integrated into Stellantis-owned [STLA] car brand Lancia Ypsilon across multiple European countries.[ii]
“This expansion marks another important step in our mission to transform in-car experiences with cutting-edge, truly conversational voice technology,” said SoundHound AI Chief Operating Officer Michael Zagorsek, adding that it will “offer even more drivers and passengers a new level of convenience and connectivity”.
The news came on the back of launches in other Stellantis brands: Alfa Romeo, Citroën, Peugeot, Opel and Vauxhall.
SOUN Stock’s Highs and Lows
The SoundHound AI share price surged in the early part of the year after Nvidia disclosed it had invested approximately $3.67m for a 0.5% stake.[iii] SOUN stock has climbed 188.79% in the past 12 months through November 20, and 203.77% since the start of the year.
Nevertheless, the share price’s November 20 close is 37.17% below its 52-week high set on March 14. The stock tumbled on November 13 after delivering its latest results after the bell the previous day.
SoundHound AI Delivers Strong Q3 Results
In fact, SoundHound AI’s Q3 earnings were relatively upbeat. Revenue jumped 89% year-over-year to $25.1m, compared with Wall Street expectations of $23m.[iv] Meanwhile, losses narrowed from $0.11 per share in Q2 2023 to $0.06 per share, slightly better than the $0.07 per share loss analysts had been expecting.
Full-year revenue guidance for the next fiscal year was raised from $150m to a range of $155m–175m as the company looks to take advantage of the growing demand for customized voice experiences.
“We believe that voice is the ‘killer app’ for applied generative AI,” CEO and Co-Founder Keyvan Mohajer explained in the Q3 earnings release. “Thanks to our best-in-class technology, mastery of complex vertical integrations and proprietary AI software, SoundHound is ideally positioned to capitalize on this huge and growing opportunity.”
Fellow AI voice stocks LivePerson [LPSN] and Veritone [VERI] both reported a loss and revenue decline for Q3.[v],[vi]
While SoundHound AI is a much bigger business than LivePerson and Veritone, the stock could be considered overvalued, especially when you consider that the average P/S ratio for companies in the application software industry is 4.55.[vii] However, the company is expected to display healthy growth over the next two years.
SOUN Stock: The Investment Case
The Bull Case for SoundHound AI
The company is positioned to benefit from the ever-growing demand for AI voice. Chief Financial Officer Nitesh Sharan told Opto Sessions in October that “if you extend this to voice interaction, voice commerce, advertising opportunities, all that we put out, we think it’s a $140bn market”. Customer service is likely to be “the greatest growth engine” in the near term.
As SoundHound AI grows its share of the voice AI market, the company will move closer to breaking even.
Sharan added that the aim is to be profitable in 2025 and this should reduce the need for any future fundraising
The Bear Case for SoundHound AI
A major reason why SOUN stock pulled back despite a relatively positive earnings report is that investors seem to have been taking some profit after such a big rally.
Ladenburg Thalmann analyst Glenn Mattson downgraded the stock following the earnings, citing the “rapid share price gain, coupled with a model that shows significantly higher losses than our previous expectations”.[viii] Matson does, however, “expect the company will grow into this valuation, and emerge stronger over time”, according to a note to clients seen by Investor’s Business Daily.
Another sign that SOUN stock might be cooling off is that no insiders have bought in the last three months.[ix] Data shows that Mohajer sold 154,185 shares in September for approximately $750,000. Five other directors sold 144,114 shares between them that month.
Conclusion
Despite SOUN stock’s selloff following its Q3 earnings, SoundHound is well positioned to benefit from the growing demand for conversational voice AI to improve customer engagement and experiences. The company is also on track to break even in the coming quarters.
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[i] https://www.marketsandmarkets.com/PressReleases/ai-voice-generator.asp
[ii] https://investors.soundhound.com/news-releases/news-release-details/soundhound-ai-brings-voice-assistant-generative-ai-lancia
[iii] https://www.edgemiddleeast.com/innovation/emergent-tech/nvidia-discloses-investment-in-arm-soundhound-and-recursion
[iv] https://investors.soundhound.com/news-releases/news-release-details/soundhound-ai-reports-record-third-quarter-revenue-89-exceeding
[v] https://ir.liveperson.com/static-files/18ebef63-1051-4308-9174-eb8be0b4bb8f
[vi] https://investors.veritone.com/news-events/press-releases/detail/353/veritone-reports-third-quarter-2024-results
[vii] https://fullratio.com/ps-ratio-by-industry
[viii] https://www.investors.com/news/technology/soun-stock-soundhound-stock-drops-after-q3-report/
[ix] https://www.nasdaq.com/market-activity/stocks/soun/insider-activity