The hype around artificial intelligence (AI) has been in overdrive mode lately; companies like Nvidia Corp. (NVDA) and Adobe Inc. (ADBE) are seeing their stock prices soar double and triple digits this year. Those gains have put the hype directly into C-suites up and down the market. Every Fortune 500 earnings call has talked up AI in one form or another.
Now, no doubt, companies like Nvidia, Adobe, Google, and others have developed legitimate, powerful AI tools that generate revenue.
But several stocks are currently riding high on the hopes and dreams of developing a future AI product – ones that may never exist or be competitive in today’s market.
Take SoundHound AI Inc. (SOUN) – they’re a “voice AI technology company.” Its platform “enables users to become more productive” by interacting with products via voice commands.
On the surface, this sounds like a great story, but there’s a problem. I’m a skeptical investor – I have to see more than a brochure or a commercial before I fork over my hard-won capital. As such, I have a hard time believing “voice AI technology” could become “absolutely massive” in the near or medium term. Might it simplify users’ tasks? Maybe – but much bigger players already dominate this niche.
Those are a much more compelling play on AI…
The Competition Will Swamp SoundHound
Microsoft Corp. (MSFT) has been developing its voice AI technology for years, and it’s already integrated into many of the company’s products – multibillion-dollar product lines such as the Xbox and Windows 11. Apple Inc. (AAPL) and Google also have a strong voice AI presence in Siri and its counterpart Google Assistant.
One significant use case and revenue driver for SoundHound is automotive. On its earnings call, it discussed, “We can scale with existing customers, and we are constantly adding new ones. In automotive, for example, we saw over 2x growth in units and also realized unit price expansion in Q1.”
SoundHound is also competing in the connected device market, which is dominated by some of the largest companies in the world. Amazon Alexa has existed since 2014, and Google Home smart speaker since 2016.
Sometimes David beats Goliath… but this is 2023, and the global tech sector is worth more than $9 trillion; the stakes couldn’t be much higher.
More than likely, Goliath is gonna wipe the floor with David. There are some signs that are already happening, or soon will…
Watch Out for Slowing Growth
One of the big bull cases for SoundHound is its growth rate – an admittedly very strong 56%. But that is projected to slow to 30.9% and 15.9% over the next two quarters, according to Wall Street analysts. That slowdown is going to leave the stock significantly overvalued.
These estimates aren’t surprising. Bookings, a leading indicator of revenue growth rates, have slowed to their lowest level in several quarters. Backlog growth is 46% year over year, down from 207% in Q2 2022.
This is already impacting earnings. In its most recent earnings call, SoundHound admitted it had already missed consensus revenue expectations. Not a good look for a company in growth mode.
Revenue has grown, but at the cost of increased losses at a higher pace, pushing the company further from profitability.
Here’s Why you Should Avoid SoundHound
The stock is up purely on AI hype – mere speculation. Given this company’s current trajectory, the likelihood of an investor making a profitable investment here is rather small. SoundHound is counting on the right narrative and a $160 billion-plus total addressable market by 2026 to get investors interested. However, that is only hiding the weakness taking shape under the slick surface.
This is a stretch for a company with a market cap of less than $1 billion.
Over the last 12 months, SoundHound has burned over $100 million. With a cash position of $46.3 million, it’s highly likely that soon they’ll be out, hat in hand, trying to raise money at unfavorable rates -or looking to dilute current shareholders.
The bottom line: Voice AI could be a huge technology, but the mega-caps will corner the market. SoundHound is not the right company to invest in right now.
Director of Technology Investing Research, Money Map Press