Where Will SoundHound AI Stock Be In 1 Year?

SoundHound AI (NASDAQ:SOUN) emerged as one of the hottest growth stocks in the technology sector on Wall Street. At the time of writing, shares are up a whopping 870% year-to-date, powered by growing market enthusiasm for the company's innovative artificial intelligence (AI) solutions that could be at the start of long-term growth transformative.

Shareholders have plenty to celebrate as 2024 draws to a close but can this historic rally continue? Let's explore where SoundHound AI stock could be in a year.

Key development of artificial intelligence lies in his power to understand and produce natural language. Human speech is fast becoming the way to go for people and AI-powered devices to interact for many applications, as intuitive voice communication offers significant advantages compared to text experience.

SoundHound AI is a leader in this area of ​​conversational intelligence, backed by its proprietary platform. From early success in partnering with major automakers that integrate the company's in-vehicle intelligence with voice assistance and generative AI capabilities, this year's big development is the growing number of use cases. The company is optimistic about its AI customer service solutions, where AI agents can answer complex user queries in a wide range of industry verticals with a conversational voice.

Comments by CEO Keyvan Mohajer highlighted how the technology is developing. During a recent earnings conference call with investors, Mohajer said:

AI customer service will become as necessary to every business as Wi-Fi and electricity. And thanks to the incredible progress voice AI has made in recent years, we believe consumers will prefer to have a consistent and accurate conversational AI agent rather than a human handling their questions and transactions .

Ultimately, this opportunity helps explain the market's enthusiasm for SoundHound AI stock.

In the third quarter (for the period ended September 30), SoundHound AI posted revenue of $25.1 million, an 89% year-over-year increase. The company now serves more than 200 enterprise-level customers, demonstrating its diversified business mix. For the full year, SoundHound AI expects revenue of around $84 million, marking an 83% jump from 2023.

A key revelation from the quarterly report came in the form of new guidance for 2025, with the company targeting revenue between $155 million and $175 million next year. This forecast implies a faster growth rate of 96% at the midpoint estimate compared to the 2024 estimate. Although profitability is not expected in the foreseeable future, management aims to achieve positive adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) by the end of 2025.

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Following the spectacular rally in SoundHound AI stock, investors must contend with an objectively expensive valuation.

With a current market capitalization of $9 billion, SoundHound AI shares are trading at a staggering 90 times this year's revenue forecast as a forward price-to-sales (P/S) ratio. This level is far beyond other AI stocks like Palantir Technologies at a forward P/S ratio of 66 or Nvidia at 26, which in contrast to SoundHound AI is profitable and generates positive free cash flow.

The market can often ignore those metrics and reward disruptive and high-growth companies with a premium valuation. Nevertheless, there is a case to be made that the market has gone too far with SoundHound AI, pricing many of the positives in its prospects for many years to come. The risk is that results start to overwhelm. In the longer term, it is unclear whether the company can maintain its technological advantage or how the conversational AI market will evolve in a highly competitive environment.

SoundHound AI stands out as a unique pure play AI software company and the latest results speak for themselves. That said, I think it's too expensive at the current level to buy with conviction. I predict shares will be lower by this time next year, with the silver lining that a correction could present an opportunity for patient investors to buy SoundHound AI at a lower and more attractive price.

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And Victor does not have a position in any of the stocks mentioned. The Motley Fool has and recommends positions in Nvidia and Palantir Technologies. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.

Where Will SoundHound AI Stock Be In 1 Year? originally published by The Motley Fool