Nowadays, you’ll be able to’t discover an funding financial institution analyst who’s not excited a couple of handful of synthetic intelligence (AI) shares. Since ChatGPT exploded in recognition in late 2022, companies of all sizes have been hurling cash at new AI options with each fingers to keep away from getting left behind.
One inventory that is benefited immensely from the AI revolution is SoundHound AI (SOUN -6.09%). Enterprise clients license its expertise to help their voice-activated AI brokers, that are like chatbots that may behave autonomously in a particular surroundings. From the tip of 2023 via Dec. 22, the inventory has shot 926% larger.
Nonetheless, what goes up typically comes down, however H.C. Wainwright analyst Scott Buck thinks SoundHound inventory has sufficient gasoline within the tank to climb larger. On Dec. 23, he raised his financial institution’s worth goal to $26 per share and maintained his purchase ranking. The brand new goal implies a achieve of 19.5% from SoundHound’s closing worth on Dec. 22.
Why Wall Road’s bullish for SoundHound AI inventory
Wall Road analysts are pounding the desk on this inventory as a result of it has been pulling in new clients left and proper. Round a yr in the past, SoundHound’s clients have been almost all vehicle producers. Now, 5 industries — auto, eating places, monetary companies, healthcare, and insurance coverage — contribute between 5% and 25% of complete income.
Third-quarter income soared 89% yr over yr, and precise utilization of the voice-recognition companies it sells is rising even sooner than gross sales. The corporate delivered an annualized run fee of over 6 billion queries within the third quarter, a achieve of greater than 100% yr over yr.
SoundHound expects one other huge yr in 2025. The midpoint of administration’s steerage ranges suggests income will develop 98% in 2025.
SoundHound misplaced $22 million within the third quarter, however earnings on a GAAP foundation may very well be coming in a few years. Administration expects adjusted earnings earlier than curiosity, taxes, depreciation, and amortization to show constructive in 2025.
Causes to stay cautious
SoundHound says voice is turning into the popular manner for customers to work together with their units, however I do not know many individuals who aren’t promoting AI instruments that agree. I’ve an entire drawer filled with unplugged but totally practical good audio system, and it makes me nervous about this firm’s skill to keep up its gross sales trajectory.
SoundHound can be working underneath the belief that AI-powered customer support will develop into as essential to all companies as Wi-Fi and electrical energy. Including a thicker layer of automation between clients and an actual one who may help them is the kind of resolution that solely is sensible to managers desirous to decrease payroll bills.
I am nervous that SoundHound’s upward progress trajectory will flatten out in a yr or two as worry of lacking out on the AI revolution subsides. This may be a catastrophe for buyers who purchase the inventory at current costs as a result of expectations are extraordinarily excessive.
SoundHound AI inventory has been buying and selling for 91.5 instances trailing gross sales. With expectations this excessive, buyers who purchase at current costs may endure heavy losses if the income steerage administration points subsequent yr is not equally spectacular.
Lastly, SoundHound AI most likely would not have an financial moat to maintain competitors at bay. Eventually, a competitor providing AI agent help that is ok for SoundHound’s purchasers may achieve a big share of the marketplace for voice-driven AI agent expertise.
A purchase now?
Eventually, I will have an excellent expertise with a voice-driven AI agent. Till that day comes, I’ll keep away from SoundHound inventory.
If you happen to’re extra assured than I’m concerning the future adoption of voice-driven AI brokers and you’ve got a excessive danger tolerance, this may very well be a inventory to think about shopping for. As a a number of of gross sales, it is costly, however its market cap is a modest $7.4 billion at current costs.
The general marketplace for AI brokers is anticipated to rise from a worth of about $5.1 billion this yr to $47.1 billion by 2030, in line with analysis from Markets and Markets. If you happen to consider voice-activated brokers are going to be the preferred kind of AI agent within the years forward, including shares of this inventory to a diversified portfolio may very well be the suitable transfer.
Cory Renauer has no place in any of the shares talked about. The Motley Idiot has no place in any of the shares talked about. The Motley Idiot has a disclosure coverage.