Where Will SoundHound AI Stock Be in 5 Years?

SoundHound AI (NASDAQ: SOUN) has delivered stunning gains of 732% in the past year, as of this writing. However, if we take a look at the stock's performance since it went public in April 2022 by merging with a special purpose acquisition company (SPAC), the picture is quite different.

Though SoundHound has registered healthy gains of 89% in just under three years since its stock market debut, it has been prone to wild swings. This is evident from the chart below.

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SoundHound stock took off big time in February last year once it emerged that semiconductor giant Nvidia has a small stake in the company. Though a Nvidia filing with the Securities and Exchange Commission (SEC) revealed an investment of just $3.7 million in shares of this voice artificial intelligence (AI) solutions provider, investors saw this as a vote of confidence in SoundHound's prospects.

The good part is that SoundHound has been delivering outstanding growth quarter after quarter, and expects its growth to accelerate. Moreover, the company operates in a market that's currently in its early phases of growth and has the potential to become much bigger over the next five years.

Does this mean investors looking to buy and hold an AI stock for the next five years can still consider buying SoundHound?

SoundHound AI looks built for long-term growth

A look at the chart below tells us that SoundHound's revenue growth trajectory has been improving since going public.

SOUN Revenue (TTM) data by YCharts

Its 2022 revenue was up by 47% from the previous year, followed by a similar increase in 2023.

SoundHound is yet to release its full-year 2024 results. (Results for the third quarter of 2024 were released in early November; its investor relations page has no information on timing of the next quarterly report.) However, its full-year revenue guidance in November of around $83.5 million points toward an 82% improvement from the previous year. Even more encouraging, the company expects to nearly double its top line in 2025 to $165 million at the midpoint of guidance.

Such an outstanding revenue growth trajectory can be attributed to fast-growing demand for SoundHound's voice AI solutions in industries such as automotive and restaurants. More importantly, the company has taken steps to ensure that it diversifies into more industries. SoundHound spent $80 million to acquire enterprise AI voice solutions provider Amelia last year. The company points out that this will help it access new verticals such as finance, insurance, and healthcare.

With a combined base of around 200 customers, SoundHound believes that its Amelia acquisition will open up cross-selling and upselling opportunities. This acquisition could turn out to be a smart move in the long run, as the conversational AI market is expected to grow fivefold over the next several years, according to Fortune Business Insights.

The market research firm expects this niche to generate annual revenue of $61 billion in 2032. SoundHound AI, therefore, has a lot of room for growth for the next five to seven years, which could allow it to keep growing at impressive rates.

SoundHound's client list is solid enough to help it sustain impressive growth levels for the next five years. From Stellantis to Hyundai to Qualcomm to Oracle to Chipotle, SoundHound's client list is big and diversified. The company points out that no customer will account for more than 10% of its top line following the acquisition of Amelia.

What's more, the company has diversified its business model to ensure robust long-term growth. It collects royalties and subscription fees. The company's impressive customer list and its revenue generation models explain why SoundHound was sitting on a cumulative subscriptions and bookings backlog of more than $1 billion at the end of the third quarter of 2024. This figure more than doubled year over year, and that's a good thing, as it points toward a healthy revenue pipeline for the future.

SoundHound's bookings backlog refers to committed customer contracts that it has yet to fulfill. The subscriptions backlog is on the ambiguous side as the company says it is the "potential revenue achievable for the company with current customers where the company is the leading or exclusive provider."

The subscriptions backlog is calculated for a five-year period, with SoundHound estimating that customers will ramp up the deployment over a four-year period before fully rolling out its solutions in the fifth year. Of course, the subscriptions backlog metric can be impacted by cancellations or if SoundHound is unable to convert its potential customers into actual customers.

The company says it makes reasonable assumptions and applies a lower adoption percentage to pilot and proof-of-concept customers. Even with these caveats, the massive backlog SoundHound is suggesting for the next five years indicates that its outstanding growth trajectory is set to continue.

This factor could keep investors from buying the stock right now

However, there is one problem for investors looking to buy the stock right now. SoundHound's phenomenal surge in the past year has made the stock very, very expensive. It has a price-to-sales ratio of 64.

SOUN PS Ratio data by YCharts

Though the sales multiple has fallen substantially following the stock's recent pullback, it is way higher than where it was a year ago. So, value investors looking to add an AI stock to their portfolios would want to look elsewhere, as even though SoundHound seems poised for robust growth for the next five years, it is too expensive to buy right now.

However, growth-oriented investors with the ability to take on more risk can consider keeping SoundHound on their radars. The company's growth rate is picking up, and it has a huge addressable market to tap into. In fact, there are stocks such as Palantir trading at a whopping 80 times sales and growing at a slower pace than SoundHound.

Moreover, SoundHound's forward sales multiples are significantly lower than the trailing one, and that's not surprising, considering the healthy top-line growth that it is expected to deliver.

SOUN PS Ratio (Forward) data by YCharts

Is SoundHound stock a buy?

SoundHound AI is not an investment for the fainthearted. The stock has been prone to big swings and is very expensive right now. But at the same time, it seems to have the ability to justify its valuation by sustaining its remarkable growth over the long run, and that could result in more stock price upside. We don't know where the stock will be in five years, but it's got a lot going for it.

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill, Nvidia, Oracle, Palantir Technologies, and Qualcomm. The Motley Fool recommends Stellantis and recommends the following options: short March 2025 $58 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.