1 Top artificial intelligence (AI) stock not currently facing a DOJ or SEC probe

In new and exciting fields like artificial intelligence (AI), it can be difficult to separate the good from the bad. From investment advisors to the companies themselves, there have been a number of investigations and inquiries so far in 2024 that have looked at the claims and promises of various AI technology players.

For example, Nvidia received a federal subpoena, Alphabet faces antitrust litigation, and whistleblowers are pressuring the SEC to investigate OpenAI. Those probes may not change the fundamentals of those companies, but some investors would rather not have to worry about such a risk.

But not all businesses in this hot niche are under attack — and one in particular looks like an extremely attractive investment prospect. There is risk in buying into this smaller company, but also considerable upside potential.

This cheap AI stock has exposure to multiple industries

Relatively few investors have heard of SoundHound AI (SOUND -0.41%). The company has a market capitalization of only $1.7 billion. But if he pulls it off, he’ll make a lot of noise in the next few years because he’s in the right place at the right time.

As the name suggests, SoundHound is in the sound business. Specifically, it has developed voice AI and speech recognition that can be useful in a number of places, from vehicles to cars.

Management claims its technology is “best-in-class … outperforming competitors in speed, accuracy and complex language understanding.” Its growing customer base is a testament to these claims.

SoundHound has a deep portfolio of proprietary AI technologies and a long list of pilot customers. In recent years, he has signed automakers such as Dodge and honda, which will use its voice software to enhance the experience of their drivers. Stellantis — which owns the Fiat and Jeep brands, among many others — recently signed a deal with SoundHound that will allow its drivers to talk to their cars about maintenance issues. The company has also signed deals with several restaurant operators, including Applebee’s and White Castle, to make their drive-thrus more efficient.

SoundHound has an impressive portfolio of technology. And it’s signing clients across a variety of industries, gaining credibility just as the AI ​​revolution takes off. While the stock is expensive at 24 times sales, the company’s small size and fast-growing revenue base largely justify the valuation. If management can execute, this could be the next blue chip AI stock.

SOUN PS Ratio given by YCharts.

Before you buy SoundHound stock, understand these issues

SoundHound apparently has the right technology at the right time. And unlike other AI companies, it is not under any major investigation by regulators. But that doesn’t mean the company is without flaws.

While the company’s growing revenue base and growing client list — not to mention a $3.7 million direct investment from AI chipmaker Nvidia — work in SoundHound’s favor, it’s far from rest assured that the company will be a winner in the competitive AI space. Tech giants including Alphabet and IBM, is developing its own solutions, and SoundHound’s $60 million annual R&D budget may not be enough to keep its technology competitive in the long term.

According to The Washington Post, “investments in AI represent some of the largest infusions of cash into a particular technology in Silicon Valley history.” Google, IBM and other tech giants like Microsoft are spending tens of billions of dollars per quarter building AI infrastructure, and it’s still unclear how differentiated SoundHound’s platform is from competing models like Google’s Gemini or OpenAI’s ChatGPT, which Microsoft has backed.

SoundHound carefully selects its end markets and develops expertise in niches such as restaurant drive-thrus and in-vehicle communications. Its growing list of clients gives it a reputation as well as a growing storehouse of real-world data to further refine its AI models.

However, it’s hard to imagine big tech ignoring these opportunities for long. In the coming years, the competition will increase enormously. This could reveal SoundHound in the niche use cases it has already created. It could also push the company’s technology altogether. If it comes down to who can spend the most to accelerate their AI platform the fastest, SoundHound probably doesn’t stand a chance against its deep competitors.

However, SoundHound remains a promising choice for risk-tolerant growth investors. If the company fails, the shareholders will lose everything. But if he succeeds, it’s not hard to imagine that his stock could rise to several times its current value, especially given the company’s sub-$2 billion market cap.

Investors looking for maximum growth potential should examine SoundHound closely, but most investors should watch this company from the sidelines.