SoundHound AI (NASDAQ: SOUN) is successfully tapping into the growing artificial intelligence (AI) market with its conversational AI platform. The company's tech allows companies to offer services that range from voice-enabled ordering at Chipotle to in-vehicle voice commands for Stellantis' car brands.
SoundHound now has more than 200 companies using its tech, and investors have taken notice of its growth, driving the company's share price up more than 500% over the past year (as of this writing).
The stock's rapid rise may leave some investors wondering if SoundHound AI's stock is worth buying right now. Let's take a closer look to find out.
There's a good reason why investors have been drawn to SoundHound. The company's growth has been impressive, as evident from its third-quarter results (which ended Sept. 30). Sales soared 89% in the quarter to $25.1 million, and management issued revenue guidance for 2025 of $165 million at the midpoint, nearly double 2024's estimated sales of $83.5 million.
SoundHound also improved its customer concentration and now relies less on a handful of large customers for the majority of its revenue. Just 12% of sales are attributed to its large customers now, down from 72% last year. This is a healthier revenue mix and means SoundHound's business would be less affected by one or two large customers leaving.
It's also diversified the types of customers it has. Last year, 90% of its sales came from customers in the auto industry. Now, the company's revenue is more evenly distributed across the auto industry, restaurants, financial services, healthcare, and insurance companies, with each contributing from 5% to 25% of sales.
Even with SoundHound's impressive revenue diversification and growth in less than a year, investors should know that the company isn't profitable. SoundHound reported a non-GAAP (generally accepted accounting principles) net loss of $0.04 per share in the third quarter, an improvement from its loss of $0.06 in the year-ago quarter.
It's not uncommon for high-growth companies to be unprofitable, but investors should know that it could take a while for SoundHound to earn a profit. The average analysts' estimate is for SoundHound to have a loss of $0.24 per share for 2024 and for losses to narrow to $0.17 in 2025.
In addition, SoundHound's stock is expensive. The company's shares have a price-to-sales ratio of 64.8 right now; that's a hefty price tag considering the S&P 500's (SNPINDEX: ^GSPC) P/S ratio is 3.1.
SoundHound's stock looks too expensive to buy right now. That doesn't mean it doesn't have more room to run, but some of the stock's gains have likely come from investors' AI euphoria in the market.
If I were considering buying SoundHound right now, I'd wait until the stock pulled back a little before picking up shares. But if you're adamant about buying SoundHound, you might want to at least make sure it's a small position and doesn't take up too much of your portfolio.
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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill. The Motley Fool recommends Stellantis and recommends the following options: short December 2024 $54 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.