The voice AI solutions market is witnessing significant interest, with projections suggesting substantial growth in the long term.
SoundHound AI (SOUN 0.84%) has experienced considerable volatility in its stock performance in 2024. Despite achieving a 52-week high in mid-March after a substantial rise in the first quarter, the stock has since tumbled by 45%.
Specializing in voice AI solutions for enterprises, SoundHound has demonstrated remarkable quarter-over-quarter growth. Recent strategic moves have further bolstered its market position. The sharp decline in stock price has raised eyebrows, particularly given its previously lofty valuation.
Earlier this year, SoundHound was valued at over 40 times its sales. Even after the recent downturn, it trades at a high 24 times sales (see chart below).
Given this context of strong growth and rich valuation, should investors consider adding SoundHound to their portfolios now, and what can they expect over the next three years?
SoundHound AI’s Growth Justifies Its Valuation
SoundHound AI, a relatively small enterprise, reported $25 million in revenue for the first half of 2024. During this period, its adjusted loss per share was $0.23, a slight improvement from $0.25 per share in the previous year. The company anticipates closing the year with a minimum of $80 million in revenue, signaling accelerated growth in the latter half of 2024.
Looking ahead, SoundHound’s management projects revenue to surge to a minimum of $150 million in 2025, reflecting an 87% increase. This follows a 47% revenue increase to $46 million in 2023, underscoring significant momentum in the voice AI market.
SoundHound AI has been systematically growing its customer base, particularly in the automotive and hospitality sectors. Six car brands under automaker Stellantis utilize SoundHound’s generative AI voice assistant. Additionally, a major U.S. EV manufacturer plans to integrate SoundHound’s AI assistants across its fleet. SoundHound’s solutions will also debut in Stellantis vehicles in Latin America, and a European EV manufacturer has expanded its partnership with the company. Numerous quick-service restaurants are also employing SoundHound’s voice ordering technology.
In a strategic move, SoundHound is acquiring enterprise AI software provider Amelia for $80 million. The merger aims to enhance SoundHound’s position in the customer service sector. The integration promises to extend services across top global banks and Fortune 500 companies, covering nearly 200 notable customers.
This acquisition aligns with market forecasts, which project the deployment of AI in voice assistants to grow at a compound annual rate of 28% through 2033, potentially generating $32 billion annually by that time. This trend suggests SoundHound’s rapid revenue growth is likely to persist beyond 2025.
Future Upside Potential for SoundHound Stock
SoundHound anticipates surpassing $150 million in revenue by 2025, with analysts forecasting slightly higher figures for that year.
Based on 2023’s $46 million revenue, SoundHound expects a 78% increase in 2024, followed by an 85% rise in 2025. If the company sustains a 50% growth rate in 2026, it could achieve $228 million in revenue.
Notably, SoundHound claims a revenue pipeline of $723 million, with its cumulative subscriptions and bookings backlog doubling year-over-year in the previous quarter. This backlog, representing committed customer contracts and potential revenue, exceeds the combined revenue forecast for 2024 and 2025, as well as the estimated 2026 revenue.
If SoundHound hits $228 million in revenue by 2026 and trades at 12 times sales (half of its current multiple), its market capitalization could rise to $2.74 billion, marking a 57% increase from current levels.
These projections suggest that SoundHound stock may deliver substantial gains over the next three years, even at a lower sales multiple. Investors with a tolerance for risk might find SoundHound an appealing buy following its recent decline, anticipating a market rebound driven by impressive growth and a robust backlog.
