SoundHound AI: A Breakout Rally Is Imminent (NASDAQ:SOUN)

SoundHound: Expanding further into enterprise verticals

SoundHound AI, Inc. (NASDAQ:SOUN) is a non-profit AI company focused on innovative technologies in conversational and voice AI. It has benefited from increased demand for generative AI offerings as companies aim to expand their adoption. As a Voice AI specialist, The SoundHound AI suite of products has the potential to integrate with multiple industry verticals and market leading LLMs. SoundHound Chat AI Partnership with Perplexity demonstrates the robustness and credibility of its conversational AI leadership.

In my previous SOUN update from May 2024, I urged investors to stay invested as I updated the stock. We have assessed that its AI capabilities are gaining ground among its commercial customers. We also determined that the popularity of Voice AI could gain more traction with improved OpenAI offerings that incorporate these capabilities.

SoundHound’s recent acquisition of Amelia has expanded its ability to penetrate enterprise AI verticals. Accordingly, the acquisition of Amelia helps SoundHound reach new target markets beyond its core offerings. Management emphasized that the company has strengthened its go-to-market capabilities across multiple industries, including retail, insurance and financial services. It therefore aligns with the company’s ambitions against a “massive market opportunity” reaching more than $140 billion by 2024.

It also provided clearer visibility into SoundHound’s 2025 guidance, leading to a welcome upward revision. As a result, the company anticipates revenue of $80 million in 2024, before reaching $150 million in 2025, an increase of nearly 90% from last year. Therefore, I assess that it has improved the validation of SoundHound’s three-way revenue model, strengthening its ability to improve downstream AI monetization.

In addition, the acquisition of Amelia should also support its ability to grow to profitability, although it appears too early to validate its net earnings growth. Investors are therefore urged to consider the potential integration synergies and upselling/cross-selling opportunities arising from its acquisition to further raise SOUN’s valuation.

As a result, the company quickly outgrew the main pillar of revenue in the automotive and restaurant sectors, supporting its market expansion opportunities. New and improved growth vectors (with the Amelia acquisition) will help diversify adoption while broadening use cases across multiple verticals.

As a result, the company aims to integrate its own Voice AI technologies into more formats. These use cases include opportunities in e-commerce and customer support functions. Given SOUN’s query growth (reaching over 5 billion queries), I assess that the company’s growth prospects look very interesting if the company can validate the sustainability of its business model.

SOUN Stock: Unprofitability remains a yellow flag

SOUN’s ‘F’ profitability grade is yet another yellow flag against its bullish thesis, suggesting it appears to be a speculative opportunity at best. Despite anticipated revenue growth through 2025, the company is not expected to be profitable on free cash flow during the FY2025 forecast period.

Despite this, SOUN’s ‘A’ momentum grade underscores the market’s confidence that its ability to monetize and scale profitability could be achieved if the underlying drivers of AI demand are robust. Given the updated earnings estimates on SOUN, I assess that the market’s confidence is not misplaced. However, Wall Street analysts downgraded their earnings estimates, suggesting investors need to further verify its ability to monetize profitably.

There are valid concerns about whether pure-play AI companies have a viable business model, as AI infrastructure costs are expected to continue to rise. Therefore, the need to stay relevant and competitive could mean more aggressive spending on AI infrastructure by companies like SoundHound to maintain their competitive edge.

Additionally, Voice AI technologies are not exclusive to SoundHound, as leading AI companies continue to improve their setups. So it remains to be seen whether SoundHound could face unforeseen disruption risks despite its cash-strapped balance sheet. Given its unprofitability, the company may have limited resources to execute more M&A to strengthen its market exposure in other growth verticals.

Is SOUN Stock a Buy, Sell or Hold?

SOUN price action indicates that it has regained its uptrend continuation trend. Its ‘A’ momentum grade corroborates my observation, underscoring the market’s confidence in its bullish proposition.

There are two critical levels to monitor closely. Investors should avoid buying too close to the $6.5 resistance area, while potentially adding more aggressively to a level close to the $3.5 support area.

SOUN is currently at these critical levels, although its strong buy sentiments suggest it is likely in an accumulation phase. Therefore, I believe that a bullish thesis is still appropriate, suggesting that SOUN investors are still confident in its ability to expand further.

Rating: Maintain speculative buy.

Important Note: Investors are reminded to do their due diligence and not to rely on the information provided as financial advice. Consider this article supplementing the necessary research. Please always apply independent thinking. Note that the rating is not intended to time a specific input/output at the time of writing, unless otherwise stated.

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