Stay on the Sidelines with SoundHound AI Stocks – TradingView News

Looking at SoundHound AI’s corporate profile SUN, it’s hard not to be excited about the application software company. Specializing in independent voice artificial intelligence (AI) solutions for multiple industries – including automotive and the Internet of Things (IoT) – SoundHound effectively combines human impulses with technological conveniences. However, everything has a price and investors should be careful not to overpay for SoundHound AI stock.

To be clear, I’m not giving a bearish framework to SOUN. Rather, if anything, it’s holding. Without a doubt, the core business, which includes advanced services such as application programming interfaces (APIs) for text and voice queries, is among the most useful available on the market. Moreover, voice AI has the potential to deliver overall positive results, although this is a highly controversial debate.

Either way, generative AI is quickly becoming an integral part of modern society. Voice commands will likely only become an integral part of productivity metrics. That’s why SoundHound AI stock is of great importance. Few would doubt this hypothesis. However, price is everything, especially for a relatively small-cap company.

Fundamentals support the long-term narrative

As mentioned above, no one is questioning the viability of the narrative driving SoundHound’s AI resources. There’s a reason why the stock has gained over 143% of its share price since January’s opening.

Much of the positivity around SOUN is, of course, the dramatic interest in generative artificial intelligence. According to Bloomberg, the entire ecosystem could be worth $1.3 trillion. While this may be the more optimistic end of the scale, it is certainly not unreasonable compared to other forecasts.

It is also important to note that sector players continue to post great performance statistics. An example is Nvidia NVDA. Demand for graphics processing units (GPUs) – the semiconductors that power advanced generative AI protocols – is absolutely insane. Nvidia continues to meet expectations. This is true even as critics question the sustainability of the “Take No Prisoners” campaign.

While not directly related to SoundHound AI stock, the underlying company is benefiting from wind. Nvidia’s latest results show that enterprises continue to pay huge amounts for the best AI solutions.

Moreover, SoundHound AI stock is losing ground in its core industry. According to Grand View Research, the global voice and speech recognition market was valued at $20.25 billion last year. Experts predict that by 2030, the sector’s revenues may reach USD 53.67 billion. If so, this would represent a compound annual growth rate (CAGR) of 14.6%.

So why not buy SOUN stock now?

Valuation still matters

While I’m not suggesting that investors should sell SoundHound AI stock, which would be extremely dangerous, I’m not convinced that now is the right time to buy. Essentially, the market can still provide a discount to SOUN. If so, I would probably regret settling for the unnecessarily high price.

Don’t get me wrong, SoundHound offers a great solution. Certainly its core market could see significant growth, but I’m not ready to pay a huge valuation premium. Compared to last year’s sales, you would pay a multiple of 24.89X. It’s terribly steep.

I’m not just saying that. As mentioned earlier, SoundHound AI resources fall under the area of application software. On average in this sector, the revenue multiple is 3.9X. It’s true that comparing apples to apples is difficult because not all software companies are as exciting as SoundHound. However, this is a huge multiplier to pay considering that at some point the growth rate will decline due to the maturity of the company.

Yahoo Finance notes that SoundHound’s quarterly revenue growth rate is currently 72.9%. This is hot as hell. However, analysts also expect fiscal 2024 sales to reach $71.03 million and fiscal 2025 revenues to reach $104.33 million. This represents a year-on-year increase of 54.8% and 46.9%, respectively.

These are certainly solid numbers. However, the amount of growth has been steadily decreasing from 72.9%.

Finally, with the most optimistic fiscal 2025 sales target of $107.03 million, SoundHound AI stock will trade at a multiple of approximately 14.02X. That’s better than almost 25X. However, compared to the application software industry, it is still very hot.

Takeaway: SOUN products are great, but not at this price

Here’s a summary of SoundHound AI’s stock. The foundation of the business is amazing, there’s no doubt about it. Moreover, the voice recognition AI subsector has a credible growth path heading north. However, the sales multiple is just too hot. Perhaps a better solution for potential investors will be to wait for a better offer.

As of the date of publication, Josh Enomoto did not hold (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com’s Editorial Guidelines.

Josh Enomoto, a former senior business analyst for Sony Electronics, has helped broker large contracts with Fortune Global 500 companies. Over the past few years, he has provided unique, critical insights to the investment markets as well as a variety of other industries, including law, management construction and health care. Tweet him at @EnomotoMedia.