Long-term investors should consider smaller, less established companies with high development potential. SoundHound AI (NASDAQ: SOUN) matches the criterion with a $1.6 billion market valuation. Shares have up 145% year-to-date, suggesting near-term momentum.
Is SoundHound's latest rally a hype-driven anomaly or a long-term bull run? Let's explore this revolutionary AI company's future five years.
Why did SoundHound's rally explode? SoundHound AI, founded in 2005, develops voice, sound, and language-recognition software for restaurant drive-throughs and call centers. This technique works with OpenAI's ChatGPT's generative AI. As companies automate to stay competitive, SoundHound has seen a rise in interest.
Fourth-quarter data show rising demand for the company's services. Management negotiated multiple arrangements to integrate its voice assistant to automobiles, smart TVs, and eateries like White Castle, Krispy Kreme, and Church's Chicken, boosting revenue 80% to $17.1 million. Operating losses fell 57% to $12.4 million from the previous year, improving the company's profitability.
Much to enjoy about SoundHound. Start with its huge addressable market. SoundHound has a huge opportunity as a third-party service provider because restaurants may not be tech-savvy enough to construct their own AI drive-through systems. The company's switch to generative AI might also provide chances in the auto industry, where voice assistants allow drivers to access information hands-free.
SoundHound may develop rapidly in the coming years as its technology improves and more companies use its services. It may face competition from mainstream AI rivals like OpenAI, which is creating similar software. However, its first-mover advantage should help it achieve market share and brand recognition in a competitive sector.
Should I buy SoundHound stock? Investors should also consider SoundHound's balance sheet, despite its AI promise. These figures could really affect the stock's performance in the future.
Only $95.3 million in cash and equivalents allows the corporation to sustain a few more quarters of operational losses. As in the past, it will likely issue fresh shares to raise funds. Equity dilution will allow SoundHound to operate unprofitably indefinitely, but it will reduce shareholders' claim on future earnings and cash flow.
Given its losses and shareholder dilution, SoundHound appears to have a promising future in a fast-growing industry, but it may be too early to buy shares. Investors may wish to wait for more quarters of data before buying the stock.
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