SoundHound AI Revenue Continues to Surge. Is It Time to Pile Into the Stock?

SoundHound AI (SOUN 0.08%) gained investor attention earlier this year when it was revealed that tech giant Nvidia (NASDAQ: NVDA) made an investment in the voice artificial intelligence (AI) company. What attracted Nvidia to the company was on full display when SoundHound recently reported its latest results.

Revenue for the first quarter surged 73%, which will come as some relief to investors. Revenue growth had slowed to only 19% in the third quarter of 2023. But this latest result now marks the second-straight big revenue growth quarter for the company. Its revenue surged in the fourth quarter as well, rising 80%.

With SoundHound’s growth clearly back on track, let’s look at whether it is time to pile into the stock.

Solid Q1 results

SoundHound’s Q1 results were strong, highlighted by its 73% increase in revenue to $11.6 million. Meanwhile, its cumulative subscriptions and bookings backlog grew 80% to $682 million. This is revenue that is contracted out and should be realized over the coming years. The average duration of its contracts currently sits around seven years.

The automobile industry has been SoundHound’s largest market, and the company said this segment was strong with royalties going up as volumes increased. It said that both auto units and cloud users expanded by double-digits in the quarter. It also noted a contract win with a leading Asian electric vehicle manufacturer that previously was not a customer. And it scored a design win with Stellantis in Latin America, and went into live production with Stellantis vehicles in Japan.

However, it was SoundHound’s inroads in the restaurant industry that really helped drive results in the quarter. It said that 30% of its revenue came from AI customer service solutions, while this revenue was negligible a year ago. It said its solution was in 10,000 locations, with a pipeline of being in 100,000 locations.

The company’s next-generation drive-thru AI service dynamic interaction solution went live for the first time at a major quick serve restaurant (QSR) in the quarter. It said it has signed deals for the solution with several other large QSR chains, including Church’s Chicken, which will be implemented in the next few months. It also still has customers on its original drive-thru solution.

SoundHound also said its Smart Ordering offering, which uses voice AI to take customer food orders and answer questions from inbound calls, has seen strong adoption. It noted that a number of top brands use this service, including Chipotle Mexican Grill, Firehouse Subs, and Five Guys. 

The company also just recently introduced an offering to assist employees, and it has moved beyond restaurants with its Smart Answering solution, which can handle multiple calls and answer questions about such things as hours, products, services, and pricing. Gym operator Planet Fitness is currently using this offering.

Picture of AI

Image source: Getty Images.

Future opportunties

SoundHound has a long potential runway within both the restaurant and automobile industries.

Within the restaurant industry alone, it sees a $100 million opportunity with over 1 million restaurant locations in just the U.S. It also thinks another 30 million service businesses could adopt its technology. In addition, its technology can work with other languages, opening up international opportunities as well.

Within the auto industry, the company continues to sign up new brands while also offering new products. It recently teamed with Nvidia to offer Nvidia Drive to deliver in-vehicle generative AI responses, such as providing information from a vehicle’s user manual, with no internet connectivity needed.

It has also partnered with Perplexity AI, an AI search engine, to provide up-to-date responses by tapping into the web. This is important because this technology offering would be much more attractive going beyond automobiles and into smartphones. If SoundHound can get its technology into smartphones, it would be a game-changer for the company and its investors.

Is it time to pile into the stock?

SoundHound is still a very small company as it is only looking to generate $65 million to $77 million in revenue this year. Meanwhile, it trades at a price-to-sales (P/S) multiple of 24, or, which isn’t particularly cheap.

SOUN PS Ratio (Forward) Chart

SOUN PS Ratio (Forward) data by YCharts

However, the opportunity in front of the company could be enormous. If its technology becomes a must-have feature and is widely adopted across devices and industries, then the sky is the limit and today’s high valuation will look cheap down the line.

At this point, that is not a sure bet, but it also isn’t out of the realm of possibility. As such, while I wouldn’t necessarily pile into this growth stock, SoundHound could make a nice speculative part of a portfolio. That is basically the same strategy Nvidia used when taking a small stake in the company earlier this year.

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