The ongoing revolution in artificial intelligence (AI) is projected to significantly transform the market. The generative AI sector alone is anticipated to reach a valuation of $1.3 trillion by 2032, with an annual growth rate exceeding 40% over the next ten years.
SoundHound AI, operating as a pure-play AI enterprise, has drawn considerable interest from investors. Notably, Nvidia made a brief investment of several million dollars in SoundHound AI, highlighting its industry appeal. Consequently, the company’s shares have more than doubled in value over the past year. This upward trend has sparked speculation about the possibility of a stock split, although the outcome may be unexpected.
There is speculation that SoundHound AI might conduct a reverse stock split in 2025. Typically, stock splits are executed to adjust the share price to facilitate various business activities. This might include making share swaps more feasible during acquisitions or ensuring shares are more accessible to investors with limited capital. Alternatively, companies sometimes conduct stock splits to present a more appealing stock price, although these actions do not significantly alter the intrinsic value of the company.
Reverse stock splits, on the other hand, are often initiated to comply with exchange requirements for maintaining a minimum share price or to enhance the perceived value of a business. SoundHound AI’s motivation for considering a reverse stock split in 2025 is believed to align with these goals.
The AI sector has experienced substantial growth in recent years. Nvidia, a supplier of AI components, executed two stock splits over the past five years, effectively reducing its stock price to a fraction of what it could have been, preventing the current price of $112 from soaring to nearly $4,500.
Despite SoundHound AI’s impressive stock performance in 2024, its share price remains below $10. To elevate the company’s perceived market standing, management may decide on a reverse stock split, although such a measure would not affect the company’s fundamental value.
Ryan Vanzo, the author, does not hold any positions in the mentioned stocks. The Motley Fool holds positions in and endorses Nvidia, as per its disclosure policy.
