Artificial intelligence (AI) stocks have skyrocketed in recent months because of their potential to disrupt so many industries. There could be many winners, including companies that sell AI tools or use those tools to make their businesses more efficient. Investors who buy stocks of these players could also make a profit.
While many of these AI players have gained double and triple digits, some may still have a lot of room for improvement. We are still in the early days of AI history. For example, an AI company that is in the process of expanding its technology and acquiring customers might see its stock rise as sales begin to increase.
This could be the case with an AI stock that Wall Street is bullish on. According to an average Wall Street estimate, this particular player could rise 70% in the next 12 months. I’m talking about SoundHound AI (NASDAQ:SOUN), a voice AI specialist that is already up almost 100% this year. Is it time to buy or is Wall Street too optimistic?
SoundHound’s voice technology
SoundHound develops the technology that powers some of our daily conversations, such as placing an order in a restaurant or voice interaction with our cars. For example, Hyundai has integrated the company’s voice recognition system into some of its vehicles, giving drivers the ability to ask their cars about the weather, sports or even how their favorite stock is doing. And just recently, SoundHound announced it would go live on 100 drive-thru lanes in White Castle by the end of the year.
Today, the voice AI specialist is primarily active in the restaurant and automotive sectors, but the market opportunity is large and SoundHound aims to address areas such as finance, healthcare and retail in the coming years. All of this gives SoundHound a total addressable market of more than $160 billion by 2026.
SoundHound isn’t the only voice AI developer, but it has some competitive advantages that could help it win in the long run. Its technology, protected by more than 100 patents, captures speech and translates it directly into meaning. This makes it faster and more accurate than traditional systems that translate speech into text before determining meaning. The company’s technology also supports complex conversations, another feature that sets it apart.
This voice AI innovator generates revenue through the placement of its products and services, but also sees the opportunity for significant revenue growth by earning commissions when users of its products access various services – for example, when a driver of a voice-controlled car places an order You in a voice-controlled restaurant. That restaurant would pay a commission to SoundHound, and the company would share that commission with the automaker.
A solid order backlog
Today, SoundHound’s sales are increasing and the order backlog is high. In the last quarter, sales and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) each increased by 80%. And subscription and order backlog of $661 million is up 2x compared to the same period last year. SoundHound also reported an annual fill rate of 3.5 billion requests, a 50% increase over the previous year.
It’s clear that there is interest and demand for SoundHound’s products. Still, it’s important to remember that the company is small, with quarterly revenue of about $17 million. So there is still a long way to go to achieve profitability and other goals.
Let’s go back to Wall Street’s estimate. It’s entirely possible that SoundHound stock could rise 70% in just one year if the company continues to report solid growth in revenue and backlog. The company has exciting technology backed by numerous patents and shows that customers are interested in its offerings. However, since the company is not yet profitable, any mishap along the way could worry investors and weigh on the stock price.
All of this means that it’s best to think about your investing style before joining Wall Street in being bullish on SoundHound. If you’re a cautious investor, it’s better to watch from the sidelines for now and wait for the company to take further steps toward profitability. However, if you can take some risk and are looking for a potential growth story, consider buying some SoundHound shares today to get an early start on this promising AI player.
Should you invest $1,000 in SoundHound AI now?
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
According to Wall Street, this artificial intelligence (AI) stock could rise 70%. Time to buy? was originally published by The Motley Fool