Should You Buy This AI Stock That Soared 800% Last Year and Has a $140 Billion Total Addressable Market?
After great gains last year, the stock slipped 45% in the first half of this year.
10 stocks we like better than SoundHound AI ›
Last year was a big one for artificial intelligence (AI) stocks, with companies in the sector leading all three major benchmarks to gains. Though the momentum halted temporarily earlier this year, as investors worried about the impact of import tariffs on the economy, this positive energy has returned. Investors are optimistic that trade talks will result in lower-than-expected tariffs, limiting the negative effects on companies, and that has buoyed interest in growth players, including AI stocks.
Some AI stocks, though, have yet to feel the rebound. Considering the long-term AI growth story hasn't changed, these players may offer you bargain buying opportunities today. Let's consider one in particular. This AI stock surged more than 800% in 2024 but dropped 45% in the first half of this year. Meanwhile, it's a specialist in its field, one with a total addressable market of more than $140 billion. Is this player a buy right now?
The AI stock I'm talking about is SoundHound AI (NASDAQ: SOUN), a company with expertise in voice AI, reinforced by more than 190 granted patents. Though other companies, even big players such as Amazon or Microsoft, are involved in the field, SoundHound stands out thanks to its speech-to-meaning technology. The company translates speech directly to meaning, bypassing the common step of translating speech to text first, therefore gaining in speed and quality.
Customers clearly like SoundHound's offerings, as revenue has taken off, and the company has signed deals across industries. This is a key point because, in its earlier days, SoundHound primarily served the automobile industry. This strength in fields such as healthcare, retail, travel, and more, as well as the fact that no customer represents more than 10% of revenue, greatly reduces SoundHound's risk. That's because if one customer or industry cuts spending, others may compensate.
SoundHound's revenue in the recent quarter advanced 151% to about $29 million, which is great. But what's even better is that the company still has plenty of room for growth, considering its current revenue level and the total addressable market of $140 billion, which spans 14 different industries. And the company has three ways to generate revenue: through royalties on its products, subscriptions for services, and taking additional revenue from the use of its products and services.
Of course, despite SoundHound's expertise in the field, the company still faces the risk of major rivals, such as those mentioned above, gaining market share due to their immense resources. That's what makes SoundHound a stock that carries some risk right now, and even though the stock has slipped this year, the decline looks small compared to the gain posted last year. These factors could limit SoundHound's growth in the near term.
Still, the company has seen growth accelerate in recent quarters, from 89% in the third quarter of last year to 101% in the fourth quarter and even higher in the most recent period. Further, as mentioned above, SoundHound may still be in its early stages of growth.
So, what does this mean for you as an investor? Should you buy SoundHound now on the dip? The answer depends on your investment strategy. If you're a cautious investor, you're probably better off buying a larger, well-established player, such as Amazon or Microsoft, that may benefit from voice AI but also from broader, profitable businesses. Over time, they've proven their earnings and stock performance strengths.
If you're an aggressive investor, though, SoundHound looks like a fantastic AI buy right now. The stock has slipped from its high, offering you a lower entry point. Revenue has clearly accelerated in recent quarters, and the company has successfully broadened its customer base across industries. On top of that, I like that SoundHound is financially healthy, with no debt and $246 million in cash. All this makes it a great AI stock to get in on right now and hang on to as its growth story develops.
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Should You Buy This AI Stock That Soared 800% Last Year and Has a $140 Billion Total Addressable Market? was originally published by The Motley Fool
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