Soundhound AI (Thorn 23.70%) has successfully entered the growing artificial intelligence (AI) market with its conversational AI platform. The company’s technology will enable companies to offer a wide range of services, from voice-enabled ordering at Chipotle to in-car voice commands for Stellantis’ car brands.
SoundHound’s technology is currently used by more than 200 companies, and investors have taken notice of its growth, with the company’s stock price up more than 500% in the past year (as of this writing).
With the stock price soaring, some investors may be wondering if SoundHound AI stock is worth buying now. Let’s take a closer look.
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SoundHound’s growth is remarkable
There are good reasons why investors are attracted to SoundHound. As evidenced by the third quarter financial results (ending September 30th), the company’s growth has been remarkable. Sales surged 89% to $25.1 million in the quarter, and management at midpoint announced 2025 sales guidance of $165 million, compared to estimated 2024 sales of $83.5 million. Almost twice as much.
SoundHound has also improved its customer focus and is now less reliant on a few large customers for the majority of its revenue. Currently, only 12% of sales come from large customers, down from 72% last year. This is a healthier revenue mix and means the departure of one or two large customers will have less of an impact on SoundHound’s business.
The customer base is also becoming more diverse. Last year, 90% of the company’s sales came from customers in the automotive industry. The company’s revenue is now more evenly distributed among the auto industry, restaurants, financial services, health care, and insurance companies, each accounting for 5% to 25% of sales.
What investors should be aware of
Despite SoundHound’s impressive revenue diversification and growth in less than a year, investors should know that the company is not profitable. SoundHound reported a non-GAAP (generally accepted accounting principles) net loss of $0.04 per share in the third quarter, an improvement from a loss of $0.06 in the year-ago period.
It’s not unusual for high-growth companies to be unprofitable, but investors should be aware that SoundHound may take a while to become profitable. Analysts’ average forecast is for Soundhound’s loss to narrow to $0.24 per share in 2024 and $0.17 in 2025.
Also, SoundHound stock is expensive. The company’s stock price is currently 64.8 times. Considering the S&P500, this is quite expensive. (^GSPC -0.00%) The P/S ratio is 3.1.
Verdict: Wait to buy SoundHound AI
SoundHound stock seems too expensive to buy right now. This doesn’t mean there’s no room for the stock to rise, but some of the rise is likely coming from investors’ excitement about AI in the market.
If I were considering buying SoundHound now, I would wait until the stock price drops a bit before buying the stock. But if you’re adamant about buying SoundHound, you might want to at least make sure it’s a small position and won’t take up too much of your portfolio.
Chris Neiger has no position in any stocks mentioned. The Motley Fool has a position on Chipotle Mexican Grill and recommends Chipotle Mexican Grill. The Motley Fool recommends Stellantis and recommends the following options: December 2024 Short $54 on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
