Nvidia Invested in SoundHound AI Inventory, However Ought to You?


Shares of SoundHound AI (NASDAQ: SOUN) have soared this yr after Nvidia (NASDAQ: NVDA) revealed that it had purchased shares within the firm. The chip big made a comparatively small funding, spending almost $3.7 million to take a 0.6% stake within the firm. The funding was certainly one of 5 that Nvidia made in tech corporations associated to synthetic intelligence (AI) within the fourth quarter of 2023.

So what precisely does SoundHound AI do, and will buyers comply with in Nvidia’s footsteps and spend money on the inventory?

Carving a distinct segment in voice AI

Earlier than Nvidia’s funding within the firm got here to gentle, SoundHound AI was not precisely well-known. Nevertheless, the corporate has relationships with various giant vehicle corporations that use its expertise to assist energy their voice assistant applied sciences. The corporate’s platform is integrated into gadgets, corresponding to vehicles, and its AI expertise helps voice assistants work together with customers in a extra pure and conversational method.

SoundHound AI’s platform, which it calls Houndify, achieves this in two major methods. First, it makes use of speech-to-meaning expertise, which processes speech in real-time so the machine understands its that means even earlier than the consumer is finished speaking. Subsequent, it makes use of deep-meaning-understanding expertise to assist perceive a consumer’s intent and reply complicated questions.

An instance of its expertise at work could be a voice assistant that is ready to give resort suggestions when given a listing of variables, corresponding to location, value ranges, facilities, and star scores.

Smiling person interacts with a voice assistant device.

Picture supply: Getty Pictures.

Making progress within the vehicle and quick-service restaurant verticals

The realm through which SoundHound AI has made essentially the most progress promoting into is the automotive trade. The corporate has relationships with over 20 auto manufacturers, together with Honda, Jeep, Hyundai, Fiat, Chrysler, and RAM, amongst others. Together with its fourth-quarter earnings report, it stated it gained a cope with a distinguished U.S.-based EV maker and signed one other contract with a big automaker to considerably enhance its unit volumes by means of 2037.

The corporate has additionally been making large strides within the quick-service restaurant vertical. Its SoundHound for Eating places voice assistant will take cellphone orders so staff do not should reply calls and might as an alternative concentrate on serving to clients. It additionally has options for drive-thrus and kiosks.

The corporate has signed offers with restaurant-focused fintech corporations corresponding to Toast and Olo, in addition to quick-service chains corresponding to White Citadel and Jersey Mike’s, amongst others.

SoundHound AI’s power within the vehicle and restaurant verticals helped it develop its income by 47% in 2023 to $45.9 million. In the meantime, for 2024, it forecast income of between $63 million and $77 million, which is sort of 53% progress on the midpoint. It stated it was on the lookout for income to exceed $100 million in 2025.

Whereas that’s stable progress, SoundHound AI’s cumulative subscriptions and bookings backlog of $661 million is extra fascinating. This metric represents the potential income the corporate expects to generate over the length of its signed contracts. At present, the common length of its contracted backlog is six and a half years, a lot of the income from these contracts needs to be acknowledged earlier than the tip of 2031, though some contracts prolong out longer.

A speculative funding

It is simple to see why Nvidia likes SoundHound, with the corporate rising rapidly and having a big income backlog. It additionally is not tough to think about that SoundHound AI’s expertise might be utilized to different industries as nicely, which might speed up its progress.

The 2 corporations additionally just lately introduced a collaboration the place SoundHound AI will supply on-chip voice AI that does not want web connectivity utilizing Nvidia’s DRIVE platform. The answer will enable customers to entry SoundHound AI’s Automobile Intelligence providing, the place customers can ask auto-specific questions, corresponding to what it means when a splash gentle is on, in addition to common questions, corresponding to discovering the perfect place to eat close by.

SOUN PS Ratio (Forward) Chart

SOUN PS Ratio (Ahead) Chart

That stated, with SoundHound inventory buying and selling at an over 26x price-to-sales ratio and the corporate presently unprofitable, the inventory could be very speculative at this level. Its expertise appears spectacular, however AI technology is evolving rapidly. What might look like cutting-edge expertise in the present day might grow to be commoditized sooner or later. Whereas its cumulative backlog is spectacular, that solely equates to about $100 million a yr in income over the common length of its contracts, so the corporate has an extended strategy to develop into its present valuation.

As such, I like to recommend that buyers hold their positions small in the event that they wish to comply with Nvidia into SoundHound AI inventory, as they need to with Nvidia itself.

Must you make investments $1,000 in SoundHound AI proper now?

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Geoffrey Seiler has positions in Toast. The Motley Idiot has positions in and recommends Nvidia, Olo, and Toast. The Motley Idiot recommends Stellantis. The Motley Idiot has a disclosure policy.

Nvidia Invested in SoundHound AI Stock, But Should You? was initially printed by The Motley Idiot

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