When investors think about high-flying artificial intelligence (AI) stocks, Nvidia or Palantir Technologies probably come immediately to mind. While both of those AI stocks indeed delivered huge returns in 2024, they lagged well behind an even bigger winner.
Soundhound AI's (NASDAQ:SOUN) share price skyrocketed 836% higher last year. However, the stock has pulled back more than 40% from its high with Soundhound's market cap hovering around $5 billion. Could buying Soundhound AI stock today set you up for life?
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What Soundhound AI does
While Nvidia is practically a household name now and Palantir has garnered significant publicity, many investors might not know much about Soundhound AI. The company was founded in 2005 with a goal to enable people to "talk to technology just as they do to each other."
Two decades later, Soundhound AI is fulfilling that goal. The company's voice AI technology is used by organizations in multiple industries, including automotive, hospitality, and restaurants.
Soundhound's customer base features a "who's who" in those industries. For example, automotive companies using Soundhound's technology include Hyundai, Kia, and Stellantis' brands Alfa Romeo, Chrysler, Dodge, Fiat, Jeep, Maserati, Opel, Peugeot, and Ram. Restaurants using Soundhound's products include Applebee's, Chipotle Mexican Grill, Five Guys, and Jersey Mike's.
The company has won 155 patents for its technology and has 115 patents pending. This intellectual property protection spans areas including machine learning, natural language understanding, and speech recognition.
A massive opportunity for voice AI
Soundhound AI's revenue has increased by a compound annual growth rate of 51% since 2020. Its momentum is accelerating. In the third quarter of 2024, the company's revenue soared 89% year over year to $25.1 million.
Importantly, Soundhound continues to diversify its customer base. In Q3 of 2023, over 90% of its revenue stemmed from the automotive sector with 72% from one customer. Today, six sectors each contribute revenue of between 5% and 25% with the largest customer making up only 12% of total revenue.
Soundhound's success so far could be just the tip of the iceberg. The company estimates a total addressable market of at least $140 billion. This addressable market could grow even larger over the next few years. Juniper Research projects the market for voice AI will top $160 billion by 2026.
The explosion of Internet of Things (IoT) devices could create an especially big opportunity for Soundhound AI. An estimated 75.4 billion IoT devices will be connected globally this year. Soundhound believes these many of these devices are ideally suited to benefit from its voice AI technology.
Could buying Soundhound AI set you up for life?
With Soundhound AI's impressive growth story and massive market opportunity, could buying the stock set you up for life? I think the answer is a definite maybe.
Soundhound faces a major risk that competitors could develop superior voice AI technology. The company doesn't have as much money as some of its deep-pocketed rivals, notably including Apple, Google parent Alphabet, Microsoft, and OpenAI.
Profitability remains elusive for Soundhound. It posted a net loss of nearly $21.8 million in Q3 of 2024. However, the company expects to generate positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by the end of this year.
On the other hand, Soundhound AI is gaining traction in the marketplace. Its impressive list of customers continues to grow. If the company can continue to out-innovate current and potential rivals, it should be much bigger by the end of the decade. Investing in Soundhound AI stock today may not set you up for life, but it possibly could.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Keith Speights has positions in Alphabet, Apple, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Apple, Chipotle Mexican Grill, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool recommends Stellantis and recommends the following options: long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short March 2025 $58 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
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