After an Incredible 578% Run, Will This Artificial Intelligence Stock Dazzle in 2025?

As we approach the end of 2024, it’s worth reflecting on what an extraordinary year it has been for the stock market. The S&P 500 index has achieved new record highs an impressive 50 times this year. There are several factors contributing to this remarkable increase, including a robust economy and the anticipated decisions by the Federal Reserve to keep interest rates low. However, one of the most significant drivers of this surge is the growing excitement around artificial intelligence (AI). While some analysts believe the market may be experiencing a bubble, or at least a period of overvaluation, it is undeniable that the AI sector is enormous and rapidly evolving.

According to Statista, the AI market is expected to expand dramatically, potentially quadrupling revenues from 2024 to 2030, which is attracting considerable interest from both companies and investors.

The AI field encompasses a range of applications, one of which is voice recognition technology. This technology allows for conversational interactions with users and boasts a myriad of applications. A leading player in this space is SoundHound AI (SOUN 12.60%), whose stock has soared by 578% in 2024 as of now.

Will this upward trend continue into 2025?

Understanding SoundHound's Market Potential

The financial prospects of conversational speech recognition technology are enormous. Applications such as order-taking at drive-thru restaurants and automated customer service solutions could save businesses substantial amounts on labor costs. Major companies like White Castle, Papa John’s, and Applebee’s are either currently piloting or fully implementing SoundHound's technology. Recently, Torchy's Tacos announced they have started deploying this technology at their locations.

Moreover, the automotive industry represents another significant opportunity for SoundHound. The technology can access vast databases to respond to queries like "What’s the most scenic route?" "What’s the weather forecast for Detroit this weekend?" or "Can you recommend a nearby Italian restaurant and the quickest route to get there?" This development marks a major improvement from previous voice command functionalities.

I believe that voice recognition technology will soon become standard practice in both drive-thru services and automotive systems. As illustrated by Statista, the market is projected to more than double by 2030.

SoundHound's revenue is currently growing at a faster pace than the overall market.

Is It a Good Time to Buy SoundHound Stock?

In the third quarter, SoundHound reported an impressive 89% year-over-year revenue increase, reaching $25 million. The company has also significantly expanded its customer base throughout 2024. Their forward-looking expectations indicate projected sales will range from $82 million to $85 million for the year, potentially reaching up to $165 million in 2025. While this growth is indeed remarkable, investors should be cautious as the company remains unprofitable and does not generate positive cash flow from its operations, making the stock inherently riskier compared to companies that are profitable.

Following an extraordinary 171% increase in stock price over the past month, questions have arisen surrounding SoundHound’s valuation. As of now, the company trades at 33 times its anticipated $165 million in sales for 2025, based on a market capitalization of $5.5 billion. This valuation is quite high, especially for a company that is not yet generating profit. Analysts currently set an average price target for SoundHound at $8.07, significantly lower than its current trading price of $14.62. While there is strong optimism about SoundHound’s future potential, investors might want to consider waiting for a price correction before investing after such a significant run-up.

Note: The author holds options for long January 2025 $2 calls on SoundHound AI. There are no positions held by the publisher in the stocks mentioned. Please read the disclosure policy.

AI, Stocks, Market