SoundHound AI(NASDAQ: SOUN) was one of the standout stocks in 2024, experiencing an impressive increase of 836%. At its highest point, the stock surged an astonishing 1,040% — but that was last year. After reaching its peak in December, SoundHound AI’s stock has seen a rapid decline, now sitting approximately 60% below its all-time high.
This is a difficult situation for anyone who invested at the peak; however, does this present a purchasing opportunity for those who missed out earlier?
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Understanding SoundHound AI
SoundHound AI is more than just an AI company; it specializes in audio inputs for AI models, distinguishing itself from others that prioritize text inputs. The demand for speech recognition in various scenarios highlights a significant opportunity for SoundHound AI’s technology to be utilized.
Currently, SoundHound’s primary markets include the restaurant and automotive sectors, where its technology is enhancing and automating drive-thru operations and acting as a digital assistant in vehicles. While adoption in U.S. restaurants is limited, some international manufacturers, like Stellantis, are already integrating SoundHound’s solutions, suggesting future growth in the U.S. as well.
The growth potential for SoundHound is considerable. In the fourth quarter, revenue grew by 101% year-over-year, totaling $34.5 million. For the entire year, revenue increased by 85% to $84.7 million, with management anticipating this trend to accelerate into 2025, projecting revenue of between $157 million and $177 million, nearly doubling. Given this impressive momentum, it’s puzzling that SoundHound’s stock is currently down 60% from its prior highs — could this be a prime buying opportunity?
Stock Valuation and Future Potential
SoundHound’s stock saw a decline attributed to excessively high expectations. At its peak, it was valued at over 100 times sales, a valuation that is challenging to support. Currently, it stands at 41 times sales, still on the higher side, given that typical software companies trade between 10 to 20 times sales, albeit few match SoundHound’s impressive revenue growth rate.
If SoundHound manages to double its revenue in 2025, it could return to a higher valuation range, closer to 20 times sales, which would be favorable for software companies. Furthermore, if it sustains robust growth into 2026, the current stock price might appear increasingly attractive.
While SoundHound doesn’t provide specific revenue forecasts for two years ahead, it offers a key indicator through its bookings backlog, amounting to $1.2 billion, marking a 75% year-over-year increase. Management expects to convert about $167 million of this backlog into revenue in 2025, suggesting over $1 billion could be recognized over the next few years. With that growth potential, along with new client acquisitions, SoundHound AI stock presents an intriguing buy opportunity for those who believe in its sustained growth.
