Should you buy SoundHound AI stock before November 12th?

SoundHound AI (SOUND 2.19%) has been one of the hottest stocks on the market in 2024, posting a remarkable gain of nearly 140% at the time of writing. But shares of the voice artificial intelligence (AI) solution provider have seen significant volatility along the way.

Shares soared in the first three months of the year on news that the semiconductor giant Nvidia made a small investment in the company. It actually peaked in March, and SoundHound AI is down 51% from that all-time high.

In other words, the initial surge that the company saw in the early months of 2024 is why it is still trading at a very high valuation. The company is not yet profitable, but its price-to-sales ratio is 25, more than three times the average price-to-sales ratio in the US technology sector of 8.

While SoundHound stock is undoubtedly expensive right now, its growth rate may justify its high valuation. More importantly, the company operates in a market that could allow it to maintain such an impressive level of growth for many years to come.

So, should growth-minded investors ignore the price and buy SoundHound AI stock before the company reports third-quarter results on November 12? Let’s find out.

SoundHound AI is preparing to deliver another stunning quarterly report

Demand for SoundHound’s voice AI solutions is growing at an incredible rate, resulting in massive revenue growth for the company. Its revenue in the first six months of the year rose 62% year over year to $25.1 million.

Analysts expect the company to report third-quarter revenue of $23.0 million, nearly in line with its first-half figure. While this may seem overly optimistic at first glance, a closer look at SoundHound’s full-year guidance shows that it may actually meet analyst expectations.

Management’s full-year guidance calls for revenue of at least $80 million, or $54.9 million in the second half of the year.

If analysts’ forecast for the third quarter is accurate at $23.0 million, the company’s revenue will increase 73% year over year. This would be a significant acceleration compared to last quarter and the last year period.

There are two reasons why SoundHound AI can truly deliver such amazing revenue growth. First, the company says it has built a strong revenue pipeline with a combined subscription and order book of $723 million, a figure it says roughly doubled year-over-year in the second quarter.

Investors should note that cumulative bookings refer to the value of SoundHound’s contractual obligations with customers at the end of the period. Aggregate subscriptions, on the other hand, refer to “the potential revenue that could be generated by a company with current customers if the company is a leading or exclusive supplier” over a five-year period. So while there is an element of uncertainty and estimation to this metric, its rate of growth bodes well for SoundHound’s future.

The second reason SoundHound will be able to drive this growth is its recent acquisition of Amelia, a company that provides enterprise artificial intelligence software for customer service applications. SoundHound previously updated its 2024 revenue guidance to $80 million or more following the acquisition, up from a previous expectation of $71 million.

Reaching that $80 million baseline would represent growth of 74% over 2023, and management expects another strong year in 2025 with revenue of at least $150 million. Moreover, SoundHound notes that the total addressable market (TAM) is $140 billion, meaning the company could be at the beginning of a stunning growth curve.

But is the stock worth buying right now?

By now, it is clear that SoundHound is growing at a rapid pace, and it may be able to maintain this pace for quite some time. However, there is no doubt that its high valuation will be a stumbling block for many investors looking to buy the stock.

But there are other AI software companies that command even higher prices. Palantir Technologiesfor example, has a sales ratio of 40, despite growing at a slower rate than SoundHound.

Of course, Palantir is a leading vendor in the fast-growing field of AI software platforms with a larger revenue base and newfound profitability, but the size of SoundHound’s lead indicates that it could become a key player in voice AI solutions. . Ultimately, the company has built a strong customer base that includes companies such as Stellantiselectric vehicle (EV) manufacturers and numerous quick service restaurants, not to mention other lucrative markets such as artificial intelligence-assisted customer service.

All this explains why SoundHound’s forward sales look much more attractive:

YCharts data.

Investors with a healthy appetite for risk should still consider SoundHound as an attractive growth stock to add to their portfolios. When the company reports on November 12, the strong results will likely lead to even higher gains for AI shares.