shares of Soundhound AI (Thorn -0.68%) Then it skyrocketed this year Nvidia (NVDA 0.12%) announced that it had acquired shares in the company. The semiconductor giant made a relatively small investment, spending nearly $3.7 million to acquire a 0.6% stake in the company. The investment was one of five that Nvidia made in artificial intelligence (AI) technology companies in the fourth quarter of 2023.
So what exactly does SoundHound AI do, and should investors follow in Nvidia's footsteps and invest in the stock?
Carving a niche for voice AI
SoundHound AI was relatively unknown until Nvidia's investment in the company was revealed. However, the company has relationships with a number of major car companies that use its technology to power voice assistant technology. The company's platform is built into devices such as cars, and its AI technology helps voice assistants interact with users in a more natural and conversational way.
SoundHound AI's platform (called Houndify) accomplishes this in two main ways. First, it uses speech recognition technology that processes speech in real time, so the device understands what you mean even before you finish speaking. We then use deep meaning technology to understand user intent and help answer complex questions.
An example of technology in action is a voice assistant that can recommend hotels when given a list of variables such as location, price range, amenities, and star rating.
Image source: Getty Images.
Advances in the field of automobiles and quick service restaurants
The automotive industry is where SoundHound AI is selling the most. The company has relationships with more than 20 automotive brands, including Honda, Jeep, Hyundai, Fiat, Chrysler, RAM, and more. Along with the fourth quarter earnings report, the company announced that it has won a contract with a prominent US-based EV manufacturer, and has also signed an agreement with a major automaker to significantly increase sales volume by 2037.
The company is also making great strides in the quick-service restaurant space. SoundHound for Restaurants' voice assistant takes orders over the phone, so employees don't have to answer the phone and can instead focus on supporting customers. We also have solutions for drive-thrus and kiosks.
The company has signed an agreement with a fintech company that specializes in restaurants. toast and Oroincluding quick-service chains like White Castle and Jersey Mike's.
SoundHound AI leverages its strengths in the automotive and restaurant sectors, with 2023 revenue increasing 47% to $45.9 million. Meanwhile, 2024 sales are expected to range from $63 million to $77 million, which would be a growth of nearly 53% at the midpoint. He said he is aiming for revenue of over $100 million by 2025.
That's solid growth, but what's more interesting is that SoundHound AI has a cumulative subscription and reservations backlog of $661 million. This metric represents the potential revenue that a company is expected to generate during the signed contract period. The average length of his contract backlog is currently 6.5 years, so most of the revenue from these contracts should be recognized by the end of 2031, although some contracts will be extended further.
speculative investment
It's easy to see why Nvidia likes SoundHound. The company is growing rapidly and has significant accrued revenue. It's also not hard to imagine that SoundHound AI's technology could be applied to other industries, accelerating growth.
The companies recently announced a partnership in which SoundHound AI uses Nvidia's DRIVE platform to deliver on-chip voice AI that does not require an internet connection. The solution gives users access to SoundHound AI's Vehicle Intelligence product, allowing users to answer car-specific questions like what it means when your dash lights are on, as well as finding the best place to eat nearby. You will also be able to ask general questions like finding a location.
SOUN PS Ratio (Forward) Data by YCharts
That said, SoundHound stock has a price-to-sales ratio of over 26 times, and the company is not currently profitable, so it is highly speculative at this point. While the technology is impressive, AI technology is rapidly evolving. What appears to be cutting-edge technology today may become a commodity in the future. While the cumulative backlog is impressive, the company has a long way to go to grow to its current valuation, as its average over-term revenue is only about $100 million per year.
So, if investors want to follow Nvidia and get into SoundHound AI stock, like Nvidia itself, we recommend keeping your position small.
