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Proprietary Data Insights Financial Pros’ Top Small/MidCap AI Stock Searches in the Last Month
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Pro Picks: Top 5 AI Hidden Gems |
With AI everywhere, pro investors are scouring the markets for the next Nvidia (NVDA). Our proprietary TrackStar data tracks their movements, so we see what they see. So, it caught our attention when searches for SoundHound AI (SOUN) dramatically increased in the past month. Average investors probably haven’t heard of this up-and-comer. While its high growth is flashy and its products outstanding, we planned to pick apart this stock so you could decide whether it’s right for your portfolio. SoundHound AI’s Business SoundHound AI creates advanced conversational AI platforms and solutions, catering to a diverse clientele that includes hardware devices, services, vehicles, mobile applications, and more. Its proprietary platform that connects people to brands through customized conversational experiences, voice-enabling products, and services with almost human-like precision in understanding natural language.
Source: SoundHound Investor Presentation SoundHound is its focus on developing independent voice AI, distinguishing itself in a competitive market by fostering uniquely conversational voice experiences. The company segments its business based on products (94% of sales), subscriptions (4% of sales, and monetization (2% of sales).
Source: SoundHound Investor Presentation SoundHound’s rapid growth is expected to jump 50% this year, taking it close to $100 million in sales led by its acquisition of Synq3 Restaraunt Solutions. Financials
Source: Stock Analysis Despite an impressive sales growth, SoundHound is not yet profitable nor cash flow positive. However, the cash burn declined Year-over-Year from $94 million to $68 million. Unfortunately, management needed to issue debt and common stock to bring in enough capital. Currently, the company is sitting on $95 million in cash which is roughly equivalent to its debt. In 2023, SoundHound issued an additional 54.4 million shares against their 200 million, diluting the stock by over 20%.
Valuation
Source: Seeking Alpha Since SoundHound doesn’t turn a profit, nor generate cash, traditional metrics aren’t relevant. We’re left with price-to-sales, which runs a hefty 26.3x. That’s higher than all its peers including questionable stocks like BigBear.ai (BBAI). Even looking at the enterprise value to sales ratios don’t paint a rosy picture of the forward outlook. Growth
Source: Seeking Alpha Despite a lack of profitability, SoundHound has incredible growth, with sales up ~50% most years. There is likely a point where the company turns an operating income profit. However, that may be several years down the road. Profitability
Source: Seeking Alpha Gross margins are the only thing going for SoundHound. And in that respect, they have some of the best. Beyond that, we can at least say their other margins are improving. Our Opinion 7/10 While the company has an amazing platform and a huge customer base, it’s burning through cash and will keep doing so. Still, it has a lot of growth potential. And it’s latest acquisition will boost sales in the near future. Management expects to achieve positive adjusted EBITDA in 2024, which would be a huge win. This is a speculative stock. But it has too much runway to ignore. |
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