Every SoundHound AI Stock Investor Should Keep an Eye on This Number

SoundHound AI (NASDAQ: SOUN) is one of the hottest stocks in the world, up roughly 800% over the past year thanks to surging demand and interest surrounding its conversational artificial intelligence (AI) technologies. These offerings are already being used at significant scale by customers in the automotive and restaurant industries, and the company is looking to expand its position in other categories, including healthcare and financial services.

In last year's third quarter, the business saw its revenue increase 89% year over year to reach $25.1 million. The company also raised its full-year sales guidance for 2024 and 2025. It now expects sales for last year to come in between $82 million and $85 million, and it anticipates revenue between $155 million and $175 million in the current year.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. See the 10 stocks »

So even though SoundHound projects annual revenue growth of roughly 82% in 2024, management actually expects that growth will accelerate and roughly double this year. But while sales growth will be a key factor in SoundHound AI's stock performance, there's another key metric investors need to keep an eye on.

Want to know where SoundHound AI stock is heading? Watch this metric.

SoundHound AI looks poised to enjoy more explosive sales growth in the near term, but investors should also closely monitor its gross profit margin performance and outlook. For reference, a company's gross profit margin is calculated by subtracting the cost to produce its goods from revenue and then dividing that number by the overall sales figure. Take a look at the chart, which tracks the AI specialist's gross margin trajectory.

SOUN Gross Profit Margin (Quarterly) data by YCharts

Despite sales exploding over the last year, SoundHound AI's gross margin has actually trended lower. The performance suggests that discounting and bundling may be playing significant roles in the business' incredible sales growth. That's not necessarily a worrying sign in the near term, and it should help build the company's sales base. But in order to deliver long-term wins, the company will likely need to boost its gross profit margins or slash operating expenses.

Should you invest $1,000 in SoundHound AI right now?

Before you buy stock in SoundHound AI, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and SoundHound AI wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $885,388!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of December 30, 2024

Keith Noonan 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.