When it comes to artificial intelligence (AI) companies, “Magnificent Seven” stocks seem to be receiving a lot of attention from the media and investors.This group is made up of super giant companies apple, microsoft, alphabet, Amazon, Nvidia, meta platformand teslacloud computing, robotics, self-driving cars, semiconductors, and more are playing a role in advances in artificial intelligence (AI).
However, smart investors understand that there are many potentially lucrative AI investments beyond the Magnificent Seven. One of his companies that comes to mind is a voice recognition software application. Soundhound AI (Thorn 19.30%). The stock price has increased by a whopping 85% so far in 2024.
Can SoundHound AI stock maintain this momentum? Let’s dig in and evaluate what’s going on with the company and decide if there’s still a chance for investors to profit from its actions.
What’s happening with SoundHound AI stock?
SoundHound AI went public through a special acquisition purpose company (SPAC) several years ago. For those not familiar with SPACs, they are simply another path a company can take to go public. SPACs enjoyed a brief moment of popularity a few years ago, thanks in large part to an entrepreneur named Chamath Palihapitiya.
Many SPAC stocks have experienced trading activity similar to meme stocks.
SOUN data by YCharts.
SoundHound AI is not immune to this movement, with its stock peaking at around $15 per share in 2022, before plummeting in less than a month. As the chart above shows, SoundHound AI stock has been buying recently. The underlying driving force behind that new momentum can be found in Nvidia’s 13F filing.
Nvidia’s latest 13F documents show the company has invested in five publicly traded companies, including SoundHound AI. Although the company’s stock is worth just $3.7 million, investors flocked to SoundHound AI stock amid growing interest and speculation about the company’s relationship with NVIDIA.
Does SoundHound AI have potential?
Putting money into SoundHound AI stock just because Nvidia owns a portion of the company isn’t a wise financial strategy. Instead, we recommend considering the market size and existing players in Speech Recognition Software Development.
According to SoundHound AI management, the company operates in a $160 billion market. It’s hard to know if this number is accurate, but voice recognition tools are of high interest to some of the most influential companies in the tech world.
In 2018, Apple acquired SoundHound AI rival Shazam for $400 million. Before that, the company spent $200 million in 2010 to acquire Siri, the voice tool found in Apple’s flagship hardware devices.
Additionally, Microsoft acquired speech recognition specialist Nuance for $20 billion two years ago. This price marks his third largest acquisition for Microsoft after LinkedIn and Activision Blizzard.
Rounding out the big tech players in the voice recognition space are Amazon and Alphabet, both of which are leveraging the technology in their respective Internet of Things (IoT) smart home appliances.
Considering Big Tech is exploring and integrating voice recognition tools into a variety of products and services, it’s easy to see why Nvidia would be interested in SoundHound AI. For now, however, details regarding the relationship between Nvidia and SoundHound AI are very sparse, and it’s still not entirely clear how the two companies will work together.
Should you invest in SoundHound AI stock?
I would caution investors to become disillusioned with the price tags attached to the acquisitions outlined above. While voice assistants could be worth a lot of money considering their myriad use cases, investors need to realize that SoundHound AI is still very small.
In the quarter ending September 30, SoundHound AI generated just $13.3 million in revenue. One encouraging thing is that the company is scaling at an impressive rate, which should help reduce its burn rate.
The fourth quarter earnings report is scheduled for February 29th, and I think the wisest thing for investors to do is to call and listen carefully. Hopefully, management will provide more details regarding its 2024 outlook. More importantly, now that SoundHound AI is attracting more attention, investors should be keen to know how the company is handling its backlog and what trends its business activity is trending. That means there is. Finally, while it’s nice to hear about development with Nvidia, I’m not holding my breath.
The most important thing for investors to understand is that wealth is not created overnight. Generating big profits requires long-term thinking and a lot of discipline. To me, SoundHound AI stock is a little overbought at the moment thanks to Nvidia’s disclosure. For a company with projected sales of $46 million in 2023, it’s hard to justify a $1 billion market cap.
For this reason, I don’t think it’s too late to invest in SoundHound AI stock. But instead of buying the stock at today’s ultra-premium valuation, investors may be best served by listening to management’s thoughts on upcoming earnings releases and looking for a rebound. I still consider SoundHound AI a speculative investment, but it has the potential for transformative returns in the long term.
Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Adam Spatacco has held positions at Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
