1 Unstoppable AI Stock That's Not Affected By DeepSeek's Breakthrough.

Many investors are worried about DeepSeek's latest breakthrough. Its Chinese developers claim to have trained a generative AI model that's on a par with many of the U.S. versions for under $6 million. This has caused many AI-related stocks to sell off, although some have remained strong.

One stock that's still well off its all-time highs (although for reasons unassociated with DeepSeek) is SoundHound AI (NASDAQ: SOUN). It's down over 40% from its highest point, which could lead investors to believe that this unstoppable AI stock is a great buy right now. However, investors must understand a few key points before taking a position in SoundHound AI.

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SoundHound AI's platform is gaining popularity

Nearly all of these generative AI models use text as an input into the system. This is useful when the user has access to a keyboard, but it can be useless in other scenarios. That's where SoundHound's software comes in.

It allows users to input audio into an AI model. It's unaffected by DeepSeek's innovation because it isn't tied to a single generative AI model; it can be used with any of them.

Audio input isn't a new concept (think Alexa or Siri), but the technology hasn't been the most consistent performer. SoundHound's product is significantly better than its predecessors' results and has found strong uses in many settings, including restaurants, automobiles, healthcare, finance, and insurance.

This broad range of industries is fairly new to the company. Just last year, 90% of revenue came from automaking, and 72% came from a single customer. Now, those revenue streams are more diversified, and no industry makes up more than 25%, and no client makes up more than 12%. That's a huge step to take for a maturing company and eliminates a single point of failure risk.

The company's growth has also been impressive, with third-quarter revenue rising 89% year over year. The fourth quarter is expected to be even better, with the average Wall Street analyst projecting 97% revenue growth. This is also expected to be an amazing year for the company, as analysts project 96% growth.

Clearly, SoundHound is experiencing rapid growth, and many investors are excited about that. However, Wall Street is also well aware of its growth prospects and bid up the stock as a result.

The stock is very expensive, but its growth may justify it

SoundHound isn't profitable, so using earnings-based metrics to value the business isn't a good strategy. However, when a company is nearly doubling its revenue for consecutive years, it gets a pass for not being profitable.

As a result, I'll value the company based on its revenue. Normally, software companies trade for 10 to 20 times sales, with the more expensive stocks trading for upward of 30 times sales. SoundHound far exceeds those levels -- the stock is priced at 65 times sales.

SOUN PS ratio, data by YCharts; PS = price to sales.

That's well above the typical valuation levels I established, but most software companies aren't doubling their revenue year over year. Furthermore, 2025 may not be the only year the company doubles its revenue.

Its revenue backlog, the amount of business it has already signed that it needs to realize sales on, reached over $1 billion. This isn't guaranteed growth, but it does give investors insight into what it's future may look like. Management says this figure is stretched out over six years, but there are likely more contracts to be signed that affect the later dates of that span, so dividing this figure by six isn't a great way of assessing it, either.

Regardless, this shows that the company will have strong growth past 2025, making it an even more difficult stock to assess.

It may be an expensive stock, but it also has incredible growth. I won't be taking a position in it at these levels, but I wouldn't blame investors if they did. There's a ton of potential in SoundHound's stock, even if it has a high starting point.

However, the stock could easily crumble if a big AI company created a competing product. As a result, investors need to understand the large risk associated with the stock and size their position appropriately.

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Keithen Drury 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.