Every move Nvidia makes right now seems to strike gold. The hype surrounding artificial intelligence (AI) stocks has hit a crescendo, enticing investors in search of the next big thing for their portfolios.
Nvidia reigns supreme in providing businesses with computer chips and software for cutting-edge AI tools, propelling itself to become one of the world’s most valuable corporations with a current market capitalization of $2.2 billion. Since the dawn of 2023, its stock has surged by a staggering 500%.
The fever surrounding SoundHound AI (NASDAQ: SOUN) skyrocketed following the news that Nvidia had not only invested in the company but also forged a strategic product collaboration. The question arises: Is it prudent to emulate Nvidia’s lead and dabble in SoundHound AI stock?
A Closer Look at SoundHound AI
SoundHound AI, as its name suggests, specializes in voice AI services, primarily catering to businesses with automated voice solutions. It boasts superior accuracy across multiple languages, as per its official website.
In practical terms, this translates to extensive partnerships with automotive giants and major restaurant chains. If you’ve recently piloted a new Honda or indulged in a White Castle meal, chances are you’ve interacted with a SoundHound AI product. Businesses seek to integrate voice tech into their offerings to enhance customer experiences and streamline operational tasks, such as order-taking at fast-food establishments.
So, where does Nvidia fit into this equation? SoundHound AI recently announced a collaboration with Nvidia to provide on-chip AI leveraging Nvidia’s extensive product ecosystem, enabling access to SoundHound’s voice tech sans internet connectivity. Both entities will center their efforts on automotive systems, where they already boast a formidable presence.
Rapid Expansion, Yet Profitability Remains Elusive
SoundHound AI exhibits rapid growth, with full-year revenues surging by 47% in 2023 to reach $45.9 million, experiencing a significant uptick in Q4 with an 80% YoY growth rate.
The company continuously unveils major partnerships. In addition to collaborating with Nvidia, it sealed a deal with a prominent auto manufacturer to embed its technology until 2037, secured a partnership with Jersey Mike’s, and acquired SYNQ3 (yes, that’s really the company’s name) to bolster its restaurant product suite.
However, the dark cloud hovering over SoundHound AI is its stark lack of profitability. Sporting an alarming -139% operating margin over the past 12 months, it incinerated approximately $70 million in free cash flow during 2023. With less than $100 million in cash reserves, SoundHound AI faces the stark choice of raising capital or swiftly pivoting towards profitability—an arduous journey to black ink lies ahead.
SOUN PS Ratio data by YCharts
Exploring Beyond SoundHound AI for Portfolio Growth
While voice AI technology sounds enticing, it’s worth recalling that this sector was hyped a few years back with minimal real-world adoption. Recall the fervor surrounding Apple‘s Siri, Amazon‘s Alexa, and Alphabet‘s Google Voice Assistant? Despite pouring billions into voice tech endeavors, the tech behemoths largely stumbled.
Why would humble SoundHound AI surpass them all? Skepticism arises. Perhaps this decade will witness a surge in AI voice assistant adoption, but if it does, the odds favor industry giants like Amazon, Google, or Alphabet, courtesy of their colossal R&D budgets and widespread distribution networks.
Furthermore, concerns loom regarding SoundHound AI’s valuation. At its current stock price, the company flaunts a price-to-sales ratio (P/S) of 26, nearly 10 times the S&P 500 average, signaling a potential overvaluation. Hence, it’s advisable for investors to steer clear of SoundHound AI stock at present.
Should You Invest in SoundHound AI Now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Brett Schafer holds positions in Amazon. The Motley Fool has stakes in and endorses Amazon, Apple, and Nvidia. The Motley Fool abides by a disclosure policy.