Now that the fervor over SoundHound AI (NASDAQ:SOUN) getting backing from chipmaker Nvidia (NASDAQ:NVDA) has subsided, investors can take a more sober look at the potential for the artificial intelligence (AI) stock. It was only that disclosure that set the voice recognition company soaring from around $2 per share to over $10 a stub but now it needs to be judged on its own merits. This will have important implications for investors interested in SoundHound AI stock.
For as long as SoundHound AI stock has been around (it was founded in 2005), its history as a public company has been less than stellar. It began trading at $8.72 per share almost exactly two years and after running as high as $15 a share shortly thereafter, it’s been all downhill since. Investors are right to ask whether SoundHound AI stock is really worth investing in.
Taking a different approach to Voice AI
Unlike a lot of other companies that glommed onto AI only after OpenAI released ChatGPT to the world, SoundHound AI has always been an AI stock. Perhaps best known for its music identification app, SoundHound unique voice AI technology has always been about converting speech to meaning instantaneously and in real time.
It’s why you were able to hold the SoundHound app up to a radio and have it immediately identify the song playing. It was a vast improvement over typical speech recognition technologies. Those had to first convert speech to text and then convert the text to meaning. SoundHound’s technology is based on what it calls “deep meaning understanding,” or the ability to understand complex conversations.
Because SoundHound’s technology uses collective AI, it learns from the rest of it connected domain. Where other technologies learn linearly one conversation at a time, the collective AI platform is always learning from users.
Getting the AI message out
So why has SoundHound AI grown more? Well, it is growing. Numerous deals have been signed with major companies to incorporate its voice AI technology into the products and services.
Snap (NYSE:SNAP) was an early user of SoundHound’s AI capabilities and Netflix (NASDAQ:NFLX) signed on several years ago to use SoundHound’s voice user interface for its Da Vinci reference design kit (RDK). It lets users communicate with set-top boxes, broadband gateways and internet of things (IoT) devices. There are over 100 million such devices in use today. It should be noted, though, Netflix apparently canceled its contract with the voice AI stock.
Television manufacturer Vizio (NYSE:VZIO) also integrated SoundHound’s AI technology into all of its smart TVs. The AI specialist also just announced Stellantis (NYSE:STLA) will be the first automaker to go into full production in Japab this month using SoundHound’s voice assistant with integrated ChatGPT. It will have initial capabilities for 13 languages in 18 countries. SoundHound has been in certain EV models from Hyundai (OTCMKTS:HYMLY) since 2021. Short-seller Capybara Research says several other automakers, however, subsequently canceled their contracts.
Still, now that artificial intelligence has been brought to the fore, SoundHound AI should have a much easier time making these deals.
Worth the risk?
SoundHound is already gaining traction. Fourth-quarter revenue shot 80% higher to $17.1 million with gross margins rising six percentage points to 77%. Full-year revenue was $45.9 million, a 47% increase year over year.
Yet investors should also realize SoundHound AI stock is still a money-losing operation. After 19 years in the business it has yet to figure out how to make money off of its AI technology. But that too could be changing.
While it reported a loss of 7 cents per share in the fourth quarter, that was a 53% improvement from last year. Even on an adjusted basis EBITDA was still a loss of $3.7 million. But that was an 80% improvement from 2022. It’s clear SoundHound AI is on the cusp of profitability.
So while this small-cap stock does carry risk for investors it is still early innings for its business. And now that it has financial backing from Nvidia, the use case for SoundHound AI has dramatically improved. So has its visibility. This should be a growth stock to own for the long haul.
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.
