Could SoundHound AI be the next Nvidia-like growth stock at $8?

This investor considers whether buying one increasingly popular AI growth stock today could be like investing in Nvidia back in the day.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares of SoundHound AI (NASDAQ: SOUN) have exploded higher in recent weeks as investors have piled into this relatively obscure growth stock.

Since 7 February, the share price has gone from $1.71 to $8.24, which translates into a whopping 381% rise.

Is this an artificial intelligence (AI) stock to consider for my own portfolio? Let’s dig in.

Riding Nvidia’s coattails

For those unfamiliar, SoundHound’s tech enables brands to build conversational AI voice assistants.

On 14 February, investors noticed in a regulatory filing that chipmaker Nvidia had a stake in this tiny firm. Like clockwork, they piled in, believing the small-cap stock with AI handily incorporated into its name could be the next big thing.

The share price went up 66% in a single day!

However, it was quickly revealed that Nvidia had held this position for seven years, without actually adding to it. What’s more, these 1.73m shares were worth roughly $11m at the time.

Admittedly, they’re worth a bit more now, but this is still a drop in the ocean for an AI behemoth like Nvidia.

Helping feed customers

SoundHound is currently focused on in-vehicle and restaurant applications. For example, it has a partnership with fast food chain White Castle that allows customers to place orders without interacting with staff.

The firm also has a deal with Toast, the cloud-based restaurant management software company. Its SoundHound for Restaurants voice assistant can take multiple orders at once, as well as answering business inquiries, before integrating them with the Toast system.

Therefore, busy staff no longer have to choose between answering a call or serving customers in front of them.

More positive news

Big news out yesterday (18 March) was that SoundHound’s in-vehicle voice assistant would use a large language model while running on the Nvidia DRIVE platform.

Using edge computing, this will provide real-time generative AI capabilities even when there is no connectivity.

One example it gives is a driver saying: “I see a flashing light that looks like a car battery and I’m not sure what that means?”

The AI can deliver information directly from the car manual without the need to start flicking through that big chunky document.

The next Nvidia?

So far, so cool, I’d say. But what about the all-important numbers?

Well, the firm’s revenue grew 47% year on year to $46m, while it recorded an operating loss of $68m. In 2024, revenue is expected to accelerate 51% to around $70m, before exceeding $100m in 2025.

Unfortunately though, this anticipated high growth is already baked into the stock’s valuation. It is trading on an eye-watering forward price-to-sales (P/S) multiple of 39.8.

If next year’s revenue does reach $100m, the P/S multiple would drop to around 27. But even that is sky-high.

Now, a positive adjusted EBITDA of $2.8m is forecast for 2025, which is encouraging. And the stock could always keep going up in the near term. Meanwhile, a $2.5bn market cap suggests there is plenty of scope to grow over the long run.

As things stand though, this appears to be an overvalued growth stock caught up in the AI hype cycle.

Therefore, I don’t see evidence that it’s the next Nvidia, and I’d be very careful buying the shares at today’s valuation.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has recommended Nvidia and Toast. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Forget Lloyds’ cheap share price! I’d rather consider this FTSE 100 bargain share

Lloyds' share price might appear too cheap to miss at first glance. But this FTSE-listed share could be a better…

Read more »

Market Movers

Down 6% today, is the BT share price gearing up for a larger fall?

Jon Smith points out why the BT share price has tumbled today, but flags up why the reasoning behind the…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

This FTSE 100 stock is down 25% from its 52-week high. Should I buy?

Analysts think the price-to-earnings ratio of this FTSE 100 stock could fall by half in the next two years if…

Read more »

Investing Articles

£10,000 invested in Nvidia stock just two weeks ago is already worth…

Nvidia stock's been making big losses and big gains so far in 2025, at least on paper. But long-term valuation…

Read more »

Stack of British pound coins falling on list of share prices
Investing Articles

Here’s why Lloyds shares have dipped sharply

Lloyds shares got a boost recently when the Treasury petitoned the Supreme Court to go easy on the car loan…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

A £10,000 investment in BAE Systems shares 5 years ago is now worth…

BAE Systems' shares have lifted off since the start of the decade. But can the FTSE 100 defence giant continue…

Read more »

Dividend Shares

£8,000 invested in high-yield dividend stocks could make this amount of passive income

Jon Smith explains how dividend shares with yields in excess of 8% can be used carefully in order to build…

Read more »

Investing Articles

£5,000 invested in Tesco shares 2 years ago is now worth…

Over the last two years, Tesco shares have provided investors with gains of around 30% per year when dividends are…

Read more »