Nvidia Invested in SoundHound AI Stock, But Should You?

shares Sound Hound Artificial Intelligence (NASDAQ: SOUN) surge after this year Nvidia (Nasdaq: NVDA) Disclosed that it had purchased shares in the company. The chip giant made a relatively small investment, paying nearly $3.7 million for a 0.6% stake in the company. The investment is one of five investments Nvidia has made in artificial intelligence-related technology companies (AI) and will be released in the fourth quarter of 2023.

So what exactly does SoundHound AI do, and should investors follow Nvidia’s lead and invest in the stock?

Carving out a niche in the field of voice artificial intelligence

SoundHound AI was relatively unknown before Nvidia’s investment in the company was revealed. However, the company has partnerships with a number of major car companies that use its technology to help power its voice assistant technology. The company’s platform has been incorporated into devices such as cars and its artificial intelligence technology helps voice assistants interact with users in a more natural and conversational way.

SoundHound AI’s platform (called Houndify) achieves this goal in two main ways. First, it uses speech-to-sense technology, which processes speech on the fly so that the device understands its meaning before the user even finishes speaking. It uses deep meaning understanding technology to help understand user intent and answer complex questions.

An example of its technology is a voice assistant that is able to provide hotel recommendations when given a list of variables such as location, price range, amenities and star rating.

Smiling person interacting with voice assistant device.

Image source: Getty Images.

Making headway in automotive and fast food verticals

The area where SoundHound AI’s sales have made the most progress is in the automotive industry. The company has partnerships with more than 20 automotive brands such as Honda, Jeep, Hyundai, Fiat, Chrysler, and RAM. In a quarterly earnings report, the company said it won a deal with a prominent U.S. electric vehicle maker and signed another contract with a major automaker to significantly increase its sales through 2037.

The company has also made strides in the quick-service restaurant vertical. Its SoundHound forrestaurants voice assistant will take phone orders so employees don’t have to answer the phone and can focus on helping customers. It also has drive-thru solutions and kiosks.

The company has signed agreements with restaurant-focused fintechs such as toast and Oloand quick service chains such as White Castle and Jersey Mike’s.

SoundHound AI’s strength in the automotive and restaurant verticals helped its revenue grow 47% in 2023 to $45.9 million. At the same time, it forecast 2024 revenue between $63 million and $77 million, with growth of nearly 53% at the midpoint. It said it expects revenue to exceed $100 million in 2025.

While this is solid growth, what’s more interesting is that SoundHound AI’s cumulative subscriptions and backlog reached $661 million. This metric represents the potential revenue the company expects to generate over the period of its signed contract. Currently, the average duration of its contract backlog is 6. Although some contracts have longer terms, the majority of revenue from these contracts should be recognized by the end of 2031.

speculative investment

It is not difficult to understand why Nvidia likes SoundHound. The company is growing rapidly and has a large revenue backlog. It is not difficult to imagine that SoundHound AI’s technology can also be applied to other industries to accelerate its growth.

The two companies also recently announced a collaboration in which SoundHound AI will provide on-chip voice AI without the need for a network connection using Nvidia’s DRIVE platform. The solution will allow users to access SoundHound AI’s vehicle intelligence products, where they can ask for vehicle-specific information. Questions like what does the dashboard light mean, and general questions like finding the best places to eat near you.

SOUN PS Ratio (Forward) ChartSOUN PS Ratio (Forward) Chart

SOUN PS Ratio (Forward) Chart

That said, since SoundHound stock trades at a price-to-sales ratio of over 26 times and the company isn’t yet profitable, the stock is extremely speculative right now.The technology looks impressive, but artificial intelligence technology is developing rapidly. Technologies that seem cutting-edge today may become commoditized in the future. While its accumulated backlog is impressive, it only equates to about $100 million in annual revenue over the average life of the contract, so the company still has a long way to go to reach its current valuation.

Therefore, if investors want to follow Nvidia into SoundHound AI stock, I recommend they keep their positions small, just as they should follow Nvidia itself.

Should you invest $1,000 in SoundHound AI right now?

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Jeffrey Thaler The Motley Fool has a post on Toast. The Motley Fool has posts and recommendations on Nvidia, Olo, and Toast. The Motley Fool recommends Stellantis. Motley Fool has disclosure policy.

Nvidia Invested in SoundHound AI Stock, But Should You? Originally published by The Motley Fool

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