Who are you going to believe? The short-sellers or leading artificial intelligence (AI) chipmaker Nvidia (NASDAQ:NVDA)? According to one, SoundHound AI stock (NASDAQ:SOUN) is a failing, “fake it till you make it” hustler scamming investors. The other invested $3.7 million in the AI voice recognition specialist, a seeming endorsement of the tech company’s potential. These polar opposite positions both can’t be right. So let’s take a closer look to see if the truth is somewhere in between.
What the short-sellers say
The report from Capybara Research is a scathing indictment of SoundHound AI. The company has been in business for 19 years yet has somehow not found a way to make a profit off its technology. And its recent financials are nothing to be excited about.
While revenue looks like it is soaring, in fact, it is only rising due to having recognized revenue that it really shouldn’t have. Mercedes-Benz (OTCMKTS:MBGAF) canceled its contract with SoundHound and the modified terms were included as “product royalties,” boosting the top line as well as margins. The reality is something far less.
Moreover, Mercedes isn’t the only client the voice recognition specialist has lost. Netflix (NASDAQ:NFLX) also isn’t on board anymore. Yet it’s difficult to say who is because SoundHound removed customer names from its most recent annual report. We also don’t know how long a customer remains with the company because it also eliminated turnover rates from the filings. Back when it was beneficial to show those names and numbers, SoundHound AI blared them from the rooftops. Now it is hiding them.
And more important, that investment from Nvidia? That’s actually not new. The chipmaker invested in SoundHound back in 2017 when it was just a startup but the CEO has cagily made it seem as if it was something that just happened.
In short, SoundHound’s AI technology Houndify is just a commodity product with not much to set it apart from the competition. Its finances are suspect and management shouldn’t be trusted to do the right thing for shareholders.
The bull thesis
SoundHound AI’s Houndify is not vaporware. This is a real product with real-world applications that is not only being put to use by actual companies but their number is growing.
While it may have lost Mercedes as a client, Stellantis (NYSE:STLA) will become the first automaker to go into full production in Japan using SoundHound’s voice assistant that will be integrated with ChatGPT. Although it will have initial capabilities for 13 languages in 18 countries, that is forecasted to grow in time. Automotive applications also account for 90% of SoundHound’s revenue. That could change soon.
Restaurants are also seeing results from integrating SoundHound’s technology and should represent 20% of revenue this year. Analyst Glenn G. Mattson from Ladenburg Thalmann sees the quick-serve restaurant market will be a major growth market for SoundHound. He forecasts 50% compounded annual growth in the tech stock’s revenue over the next two years as a result.
Mattson also forecasts steadily declining losses until SoundHound AI achieves profitability in the second half of 2025
The truth is out there
It’s true SoundHound AI stock has been a lousy investment for much of its public existence. It only really sprung to life when it was revealed Nvidia had made a significant investment in the company. And that stake is new. The chipmaker filed a 13F statement with the Securities & Exchange Commission revealing its stake in SoundHound and four other companies.
Nvidia had participated in a $75 million financing round for SoundHound prior to it going public but it also now it owns 1.7 million shares worth $3.7 million. That is a vote of confidence in its business.
SoundHound also has real customers using its product and there is ample reason to believe it can continue expanding. I recently deemed SoundHound AI stock to be an investment best-suited for investors willing to invest in high-risk companies in hopes of generating high returns, and that remains my position today.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
