SoundHound AI (NASDAQ: SOUN) has had fairly the roller-coaster journey this yr. However there’s extra pleasure forward, and I say it is time to buckle up for the following climb.
Regardless of its damaging earnings and eyebrow-raising valuation ratios, SoundHound AI stands out as a diamond within the tough. The voice-control specialist’s inventory is at present down by a big margin from its earlier highs, however do not let that discourage you. This is why I see a giant future for this little synthetic intelligence (AI) powerhouse, and why I would nonetheless name it “undervalued” at the moment.
A more in-depth take a look at SoundHound AI
SoundHound AI focuses on voice AI and conversational intelligence applied sciences, fields which might be turning into more and more very important in our tech-driven world. With a backlog of long-term contracts totaling a whopping $682 million, this firm has a transparent path to future revenue that appears largely ignored by the present market worth.
Sure, the inventory has greater than doubled from early February, when AI big Nvidia (NASDAQ: NVDA) introduced a small funding in SoundHound AI inventory. But it surely stands far under the almost $14 peak worth recorded shortly after the preliminary public providing (IPO) within the inflation-burdened spring of 2022.
The market buzz round Nvidia’s funding was greater than hype, by the best way. It was a nod from a confirmed tech big recognizing SoundHound AI’s long-term potential. Whereas the inventory has since cooled off, the corporate’s fundamentals are something however frosty.
Monetary metrics and progress prospects
Regardless of its present unprofitability and excessive valuation ratios, SoundHound AI’s monetary well being stays sturdy. The order backlog talked about above quantities to just about $700 million as of Q1 2024, up from $336 million within the year-ago interval. This backlog displays dedicated shopper contracts and practical adoption estimates for subscription companies, offering a strong basis for future income.
A skyrocketing stability on this column means that buyer curiosity for SoundHound AI’s companies is excessive and rising, and the backlog ought to convert into revenues over time. The inventory is price about 1.9 instances that backlog at the moment.
Evaluating backlog to price-to-sales ratios could be deceptive as a result of backlog represents future potential income, whereas price-to-sales relies on present income.
So it is not a wholly truthful apples-to-apples comparability to price-to-sales figures, the place this inventory appears to be like costly with a 25.5x a number of — it ought to take years to finish the revenue-generating companies. Nonetheless, most progress shares would promote their proverbial moms for a backlog like that.
Furthermore, SoundHound’s comes with a sturdy monetary base. With a money stability of $180 million and solely $85.5 million of long-term debt, SoundHound is well-equipped to proceed its progress trajectory. This strong basis is essential to the hypergrowth part of a hungry upstart, permitting the corporate to take bottom-line losses whereas optimizing its top-line progress trajectory. In different phrases, that large order backlog would not be what it’s with out SoundHound AI’s willingness to finance this enterprise stage by means of debt papers and open-market inventory gross sales.
Positioned for long-term progress
SoundHound AI would possibly look like a wild journey, however that is a part of its attraction. Certain, the inventory has taken some steep dives, however the fundamentals paint a promising image. The corporate’s backlog of long-term contracts is substantial, and its strategic strikes have positioned it nicely for future progress.
Buyers must be ready for a bumpy journey, however the potential rewards must be well worth the uncomfortable journey. SoundHound AI’s revolutionary expertise, coupled with its spectacular backlog, means that this progress story is simply getting began — almost twenty years after the corporate’s founding.
For these keen to embrace a bit of pleasure and maintain on by means of the twists and turns, SoundHound AI might be the ticket to market-beating returns. It is not a basic worth inventory, but it surely’s onerous to discover a higher purchase within the overheated AI sector proper now. I would actually purchase SoundHound AI inventory lengthy earlier than doubling down on Nvidia’s lofty valuation.
Must you make investments $1,000 in SoundHound AI proper now?
Before you purchase inventory in SoundHound AI, think about this:
The Motley Idiot Inventory Advisor analyst staff simply recognized what they imagine are the 10 greatest shares for buyers to purchase now… and SoundHound AI wasn’t one among them. The ten shares that made the lower may produce monster returns within the coming years.
Take into account when Nvidia made this record on April 15, 2005… for those who invested $1,000 on the time of our suggestion, you’d have $757,001!*
Inventory Advisor offers buyers with an easy-to-follow blueprint for fulfillment, together with steerage on constructing a portfolio, common updates from analysts, and two new inventory picks every month. The Inventory Advisor service has greater than quadrupled the return of S&P 500 since 2002*.
See the ten shares »
*Inventory Advisor returns as of June 24, 2024
Anders Bylund has positions in Nvidia and SoundHound AI. The Motley Idiot has positions in and recommends Nvidia. The Motley Idiot has a disclosure coverage.
SoundHound AI Is the Most Undervalued Synthetic Intelligence (AI) Inventory to Purchase Now was initially revealed by The Motley Idiot
