One Wall Street analyst thinks this emerging Artificial Intelligence stock could rise 60% in the next year

SoundHound AI is on the doorstep of a big year.

| More on:
A young female investor with brown curly hair and wearing a yellow top and glasses sits at her desk using her calculator to work out how much her ASX dividend shares will pay this year

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Looking at Wall Street analysts' price targets can be a worthy exercise, because it may identify some stocks with huge upsides you haven't considered. After finding such a stock (at least according to analysts), the best move is to do your own research and see if you can confirm their findings. One stock with massive upside is SoundHound AI (NASDAQ: SOUN), a small artificial intelligence (AI) company.

Gil Luria from D.A. Davidson has a price target of $9.50 on SoundHound's stock. This was last updated on Sept. 30, so the analyst's target is based on the same information that all investors have access to now. That price target indicates around a 60% upside, which would be a fantastic one-year run for the stock.

Is this a legitimate price tag? Or should investors steer clear? Let's find out.

SoundHound's product has already been integrated in several industries

SoundHound AI does what its name implies: It uses AI to help identify and process sounds. While recognizing audio and converting it into something that can be input into a computer is a very broad and useful technology, SoundHound is finding commercial success in two specific areas: restaurants and automaking.

On the restaurant side, the company is helping streamline operations by using its AI model to take drive-thru and mobile orders. The performance of these models often exceeds that of the humans they supplement, allowing restaurants to become more efficient.

On the automotive side, the company has been integrating its technology with various generative AI models to make driving assistants more useful. Its most notable client is Stellantis, and SoundHound's model has been integrated with various makes and models under the manufacturer's umbrella in Europe and Japan.

Those are relatively niche uses for the technology but finding success in a few areas before expanding elsewhere is key when growing a company. The business case is there, but how about its financials?

2025 is slated to be a massive year for SoundHound

SoundHound is still a relatively small company, so its revenue figures may not jump off the page at you. In the second quarter, it generated $13.5 million in revenue, up 54% year over year.

However, it has a revenue backlog totaling $723 million. This shows the huge demand for its technology, but it takes a while to integrate and test out before SoundHound can recognize it as revenue from its partnerships.

Management is bullish that it can start converting some of that backlog into revenue in 2025, so it expects revenue to exceed $150 million next year. That's rapid growth, but if it happens, the $9.50 price target doesn't seem so far-fetched.

Right now, SoundHound stock looks expensive because it trades at 30 times sales.

SOUN PS Ratio Chart

SOUN PS ratio; data by YCharts; PS = price to sales.

But that's using trailing data. If we plug in management's 2025 revenue projection of $150 million, then its price-to-sales ratio (P/S) tumbles to 11 times forward sales. That would be a pretty cheap valuation, considering that the company would have essentially doubled its revenue at that time.

So SoundHound's valuation could end up being higher than 11 times sales, which would cause the stock to rise. As a result, I don't think the $9.50 price target is out of line.

If management can deliver on what it told investors during its second-quarter conference call, then SoundHound AI will easily be a market-crushing investment next year. Because of that, I think investors can buy the stock if they believe in what management is saying and the company's potential market opportunity.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Should you invest $1,000 in Australian Foundation Investment Company Limited right now?

Before you buy Australian Foundation Investment Company Limited shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Australian Foundation Investment Company Limited wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 30 April 2025

Keithen Drury has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Stellantis. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

Business woman with her arms folded stands in front of multiple screens.
International Stock News

How did the Magnificent 7 fare this reporting season?

Let's explore the highlights.

Read more »

A man looking at his laptop and thinking.
International Stock News

Amazon: A good quarter but some concerns

Here's our initial take on Amazon's financial report.

Read more »

Man looks up at apple on his head.
International Stock News

Apple: Growth in a difficult environment

Here's our initial take on Apple's financial report.

Read more »

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
International Stock News

Why Microsoft stock popped this week

Microsoft stock was up by 9.5% this week.

Read more »

Electric vehicle such as Tesla being charged at charging station.
International Stock News

Tesla searches for Musk successor: Why this matters

Could Elon get the chainsaw from his own board?

Read more »

customers inside and outside a Microsoft retail store
International Stock News

Microsoft shares earnings report: What's the verdict?

Investors moved the Microsoft share price significantly.

Read more »

Warren Buffett
International Stock News

Countdown to Berkshire's AGM: What do investors expect to hear from Warren Buffett this year?

All eyes will be on Omaha, Nebraska this weekend.

Read more »

A smiling woman holds a Facebook like sign above her head.
International Stock News

Meta surges on blockbuster earnings report

It's a good day to be a Meta investor.

Read more »