Stock-Split Watch: Is SoundHound Next?

Last year saw a remarkable surge in stock splits, with notable companies like Walmart and Chipotle Mexican Grill participating in this trend. Companies in the fast-growing field of artificial intelligence (AI) also took part, with Nvidia, Broadcom, and Super Micro Computer announcing and executing stock splits after significant increases in their stock prices.

Investors frequently pondered, "Which major player will be the next to announce a stock split?" While stock splits do not alter the core aspects of a company or its stock, they are often perceived as a positive indicator. Now, let's delve into whether one of today's budding stars might be the next candidate for a stock split. The focus here is on SoundHound AI (SOUN), a company that has experienced quarterly double-digit revenue growth and a stunning 800% increase in stock price over the past year. Let's explore this further.

Understanding SoundHound's Technology

SoundHound may not be a household name, but chances are you have interacted with its technology without even knowing it. This company specializes in voice AI, offering solutions across various industries, including automotive, restaurants, and healthcare. SoundHound's technology stands out as it converts speech directly into meaning, skipping the usual step of converting speech to text, which enhances communication quality.

The company's innovations have led to products in domains such as smart ordering, vehicle intelligence, and employee assistance, contributing to substantial revenue growth. Recently, SoundHound revealed an impressive 89% revenue boost, reaching $25 million, and diversified its revenue sources across five different industries, enabling it to reduce reliance on the automotive sector, which previously accounted for 90% of its income. While it's expanding rapidly and investing in its technology, the company is not yet profitable, reporting a net loss of around $21 million during the last quarter.

The Potential for a Stock Split

Stock splits are typically seen after significant price hikes, and clearly, SoundHound's stock has seen remarkable growth. The firm has captured the attention of investors eager for opportunities within the AI sector.

A stock split works by increasing the number of shares available while lowering the price per share. For instance, a stock priced around $1,000 might be off-putting for some investors, regardless of its valuation.

However, stock splits do not fundamentally change the company or its stock's inherent value, meaning that an investor's holdings and the company’s overall market valuation remain intact. Therefore, a stock split alone should not be a reason to buy or sell shares. Nevertheless, such a move can be seen as encouraging since it may make shares more accessible to a wider array of investors and may signal that the management anticipates continued growth.

Currently, SoundHound's stock is priced at approximately $15 per share, a level that does not present accessibility issues for investors. A stock split would not decrease its overall valuation, and thus, does not necessarily mean that SoundHound would be cheaper for buyers.

This is the first time SoundHound's stock has been in a position to consider a split, so there are no historical indicators to determine the company's willingness to take this step. At present, given that a stock split does not seem necessary, SoundHound is unlikely to be the next company to announce such an action, despite its impressive stock performance recently.

Stock, SPLIT, SoundHound, AI, Growth