The AI Stock Phenomenon: A Meteoric Rise
The artificial intelligence (AI) sector, spearheaded by juggernaut Nvidia (NVDA), has been experiencing a breathtaking surge over the past 15 months. The market has been captivated by Nvidia’s exceptional growth and expanding profit margins. However, amidst this euphoria, several AI-driven stocks have found themselves perched precariously atop lofty valuations.
SoundHound AI: A Star in the AI Galaxy
One such star in the tech realm is SoundHound AI (SOUN). With a remarkable surge of 68% in the last year and a staggering 136% spike in 2024 alone, SoundHound AI has certainly been turning heads.
The Core of SoundHound AI Operations
SoundHound AI, with a market cap of $1.64 billion, operates in the realm of conversational intelligence. The company offers cutting-edge voice AI solutions tailored for businesses across diverse sectors. With a foundation in proprietary technology, SoundHound AI’s multilingual voice AI services cater to industries such as automotive, television, and the Internet of Things (IoT).
The company’s visionary services span consumer-oriented sectors, offering AI-powered solutions like smart answering, smart ordering, and an innovative dynamic drive-thru system for food ordering.
Future Clouds Gather Over SoundHound Stock
Despite SoundHound AI’s impressive client roster, boasting names like Netflix (NFLX) and Mastercard (MA), concerns linger about its competitive positioning. The looming presence of tech giants such as Apple (AAPL), Amazon (AMZN), Alphabet (GOOG), and Microsoft (MSFT) in the voice recognition software domain threatens SoundHound AI’s market share.
Financially, SoundHound AI stands among the ranks of unprofitable entities. Closing Q1 with $226 million in cash, the company saw a 73% surge in sales to $11.59 million during the quarter. However, operating losses painted a stark picture, rising to $28.52 million, a 13% increase compared to the prior year.
Downbeat Forecast for SoundHound AI
Analysts anticipate SoundHound AI’s losses per share to narrow to $0.22 by 2025, a significant improvement from $0.40 per share recorded in 2023. Nevertheless, given the current cash burn rate, SoundHound AI faces a ticking clock on maintaining losses before necessitating fresh capital injection, potentially diluting shareholder value.
The trail seems to head towards an equity capital raise in the coming year, as the company, which went public two years ago with 200 million outstanding shares, has now ballooned to nearly 330 million shares.
KM Capital’s Grim Outlook on SOUN Stock
KM Capital, an investment entity, emerges as a harbinger of caution in the SoundHound AI story. Voicing skepticism, KM Capital contends that SoundHound AI stands on a fragile pedestal, trading at an exorbitant forward price-to-sales multiple of 23x. In a bold move, KM Capital suggests a fair price for the tech stock at $1.20, signaling an alarming 76% decline from the previous day’s closing price.
Highlighting an optimistic spin on the narrative, KM Capital acknowledges SoundHound’s pioneering role within a promising sector, noting a robust Q1 earnings report and buoyant management forecasts for 2024 and 2025. Despite these glimmers of hope, rigorous valuation models suggest a glaring overvaluation of the stock.
On the flip side, the prospect of a tech titan swooping in with an acquisition offer could potentially inject upward momentum into SoundHound AI’s share prices in the short term.
Not all voices resonate with bearish tones for SoundHound AI on Wall Street. Out of six analysts monitoring SOUN stock, four advocate a “strong buy,” while the remaining two recommend a “hold,” consolidating into a consensus “moderate buy” rating.
The average target price for SoundHound AI stock stands at $7.17, hinting at a potential 41.6% upsurge from its current standing.
