The stock market often reacts unpredictably to news, and last week, SoundHound AI (SOUN) exemplified this volatility. After a research report from the Massachusetts Institute of Technology (MIT) revealed that 95% of businesses investing in artificial intelligence (AI) are yet to see profitability, SoundHound AI experienced a noteworthy drop of over 17% in share price. For investors, this sudden decline presents a potential buying opportunity worth exploring.
### Current Valuation
As of now, SoundHound AI is trading with a price-to-sales (P/S) ratio of just under 36, down from over 48 earlier this month. While this may still be considered high compared to the broader U.S. technology sector’s average P/S ratio of 8.6, it’s essential to consider the context: SoundHound is a rapidly growing player in the AI market.
### Growth Potential
The allure of SoundHound AI lies in its impressive growth trajectory. The company is expected to reduce its losses significantly over the next few years, with analysts forecasting a 34% reduction in 2025 and a 57% reduction in 2026. This projected growth far exceeds the average earnings growth of companies in the S&P 500, estimated at 9% in the current year, and 13.5% for the next.
### Addressable Market and Customer Base
Investors also need to pay attention to SoundHound’s robust customer portfolio. The company collaborates with major automakers like Honda and Hyundai and fast-food giants like Chipotle and Applebee’s. Its presence across various sectors, such as healthcare and retail, positions it well for sustained growth. Notably, SoundHound estimates its total addressable market (TAM) to be around $140 billion, with significant expansion potential through innovations in voice AI technology.
### Revenue Growth Guidance
Additionally, SoundHound recently raised its 2025 revenue guidance to between $160 million and $178 million, showcasing its strong forward momentum. The reported revenue of $85 million in 2024, reflecting an 85% increase from the previous year, is an encouraging indicator of the company’s growth.
Contract acquisition is promising, with a reported backlog of $1.2 billion in subscriptions and bookings. The company’s consistent winning of new contracts and growth with existing ones suggests that this backlog will likely expand, fueling future revenue growth.
### Conclusion
Despite the current market pessimism driven by the MIT report, the underlying fundamentals of SoundHound AI could present a remarkable buying opportunity for savvy investors. The company’s consistent growth, impressive customer landscape, and vast addressable market suggest that, while the stock may appear expensive at first glance, its long-term potential justifies the valuation.
For those willing to navigate the short-term volatility, SoundHound AI could turn out to be a rewarding investment in the rapidly evolving AI sector. The combination of projected revenue growth, decreasing losses, and a broadening customer base makes SoundHound a stock worth considering for those inclined towards growth investments.
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