SoundHound AI (NASDAQ: SOUN) has been popular with those looking for pure-play artificial intelligence (AI) investments. Because many of the most innovative AI companies are either private businesses or inside a division of a big tech company, pure-play investments are few and far between.
SoundHound AI’s popularity has been evident this year, as the stock has risen nearly 200% in 2024. But a large chunk of that came within the past week after a huge announcement from management.
SoundHound’s latest partnership could be a sign of things to come
SoundHound AI makes AI audio recognition software, which is useful for many applications, including restaurant ordering and digital assistants. The latest announcement centers around its technology being used for automotive digital assistants, an application that so far hasn’t proved to be useful.
The company has partnered with the automaker Stellantis to integrate ChatGPT into its vehicles’ digital assistants. This would make the assistant far more powerful, allowing it to help with far more complex tasks than just calling someone. This rollout is only occurring in Europe and will affect 17 markets using 12 different languages by the end of July.
This expansion of the technology is a big deal since it was previously only available in a select few Asian markets, like Japan. But with this integration coming to a far wider and more diverse market like Europe, it’s a sign that it may come to the U.S. soon.
As a result of this announcement, the stock shot up by around 30% the following day. That’s a big jump, but it’s also difficult to judge how legitimate this move is because investors don’t have any information about how this will affect SoundHound’s financials. Because right now, the company is on somewhat shaky ground.
SoundHound’s cash burn could be a problem
In the first quarter, revenue rose 73% year over year to just shy of $12 million. But operating expenses were around four times that, which is why the company posted an operating loss of $29 million. SoundHound has about $180 million in cash after a recent round of issuing more shares, so it can’t keep up this cash burn forever.
However, for SoundHound and its investors, the saving grace is its cumulative backlog. This metric measures how much business the company has already signed contracts for, although it could be many years before this revenue is recognized. With $682 million (80% higher year over year) in cumulative backlogs, SoundHound already has a huge customer pipeline.
Because Stellantis and SoundHound have been partners for some time, part of this backlog is the car maker’s. Just how much remains to be seen, but the continued rollout of this technology bodes well for SoundHound.
And other car companies might partner with SoundHound if they see its voice-driven ChatGPT integration as a strong selling point. This bullish thinking is why the stock rose so much after the Stellantis announcement, but investors need to be aware of what they’re paying for before rushing to buy the stock.
At more than 30 times sales, SoundHound’s stock is very pricey.
That multiple is expensive for any company, let alone one that is extremely unprofitable and still working on acquiring business. As a result, this is more of a long-shot investment.
Investors should think of the stock as such and not devote too much of their portfolio to SoundHound in case it goes bust. But if it turns out to be the next big software stock to emerge, a little bit of exposure is all you need to make a huge difference in your portfolio.
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Keithen Drury has no position in any of the stocks mentioned. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.
SoundHound AI Investors Just Got Huge News. Time to Buy? was originally published by The Motley Fool
Source: finance.yahoo.com