When a management team forecasts a doubling of revenue in the upcoming fiscal year, it’s a signal for investors to perk up. This kind of prediction isn’t commonplace and often signifies broader shifts within the industry. SoundHound AI (SOUN) recently made precisely this projection, and the market’s response was immediate: the stock price jumped after the earnings announcement. Could the company’s stock offer further gains alongside this expectation of doubled revenue?
SoundHound AI: A High-Growth AI Company
SoundHound is clearly an artificial intelligence (AI) company, but it distinguishes itself through its use of audio, rather than text input. This audio-centric approach has a wide range of applications, including automated drive-thru ordering systems and in-vehicle digital assistants. Moreover, any scenario involving voice communication, such as phone-based interactions, presents a potential opportunity for SoundHound’s automation. While digital assistants like Amazon’s Alexa and Apple’s Siri have been around for years, SoundHound’s superior performance sets it apart as a key technology to watch.
Demand for its products has already been substantial and continues to escalate. In the fourth quarter, revenue surged by 101% to $34.5 million, resulting in full-year 2024 revenue of $84.7 million. Management anticipates 2025 sales to reach between $157 million and $177 million, which represents approximately double the previous year’s revenue.
However, the strength extends beyond 2025. The revenue backlog—a measure of the remaining value of contracts—is approaching $1.2 billion, a 75% increase year-over-year. This substantial revenue is yet to be realized, and it’s reasonable to anticipate this figure will continue to rise throughout 2025 as new contracts are secured.
SoundHound has yet to achieve profitability, but its current position is strong. Management projects the company will become profitable on an adjusted basis by the end of 2025. Though this isn’t actual profitability according to standard accounting measures, it represents an important milestone. Furthermore, the company holds $200 million in cash with no debt, providing it with the resources to sustain its growth trajectory.
While the company presents a compelling case, its stock’s valuation has, at times, been rich. Despite a recent pullback, the stock remains expensive, though this valuation seems justified due to the expected revenue growth.
At a price-to-sales (PS) ratio of 41.2, the stock is trading at a premium. However, if revenue doubles (and the stock price remains constant) the PS ratio should drop to around 20 times sales by the end of 2025. That valuation is comparable to many other software companies. The extensive revenue backlog, stretching multiple years into the future, suggests this rapid growth will continue. Therefore, it’s sensible to consider that market expectations have already factored in approximately one to two years of growth. With that in mind, if you align with these points, you might consider investing in the stock:
- You believe SoundHound’s rapid growth will continue beyond 2026.
- You’re prepared for volatility, as the stock can experience significant price swings.
- Your intended holding period is at least three to five years.
If these considerations resonate, then investing in SoundHound AI may be a suitable move. However, patience will be essential, as the stock is likely to experience fluctuations due to its high valuation, rapid growth, and relatively small size.
