Prediction: This little-known artificial intelligence (AI) stock could go parabolic in 2024.

In the field of artificial intelligence (AI), the so-called ‘Magnificent Seven’ stocks are receiving the most attention. But if investors look beyond the megacap players, they will find several emerging companies entering AI.

One such company is a voice recognition software developer. SoundHound AI (Soun -4.93%)joined the public market through a special purpose acquisition company (SPAC) in 2022. Like many pre-SPAC companies, the stock quickly saw pronounced buying activity but then erupted shortly thereafter.

As of this writing, SoundHound AI stock is trading at about $2 per share, down 85% from its peak. These depressed prices may not inspire much confidence or investor enthusiasm, but buying dips can be a profitable opportunity. Let’s take a closer look at some of my predictions for 2024 and why I see SoundHound AI as a potential beneficiary.

There is a possibility that the Federal Reserve will cut interest rates.

Over the past few years, the U.S. economy has been engaged in a long, bitter battle with inflation. The Federal Reserve has raised interest rates 11 times, significantly impacting businesses by forcing executives to curb spending or pay more on loans.

US inflation rate data from YCharts.

Nonetheless, the chart above shows that the current inflation rate of 3.14% is well below 2022 levels and is starting to cool compared to early 2023. It is not yet known when or whether the Federal Reserve will begin cutting interest rates. , I think investors will likely see some decline in the spring or summer.

When this happens, a natural side effect could be a new spark of business activity, fueling investment in growth areas such as AI in 2024. SoundHound AI has many applications, but two of its key end markets are the restaurant industry and auto manufacturers. Both of these sectors could see new life as consumer purchasing power will be much higher with lower interest rates.

Image source: Getty Images.

Mergers and acquisitions (M&A) will rebound

Widespread economic uncertainty has slowed merger and acquisition (M&A) activity through 2023. One analysis found that through the first three quarters of 2023, global M&A volume had fallen 27% in absolute dollars compared to the previous year. However, according to several variables, 2024 could be the year of M&A rebound.

According to the research firm GartnerThe company defines this as ‘the acquisition of a digital or IT company by a company in another existing industry that has not previously made or sold information and communication technology-based products or services.’ That said, larger companies may still be interested in acquiring smaller companies purely because of their technology portfolio.

The chart below shows SoundHound AI’s quarterly cash balance and free cash flow. Given that the company is still burning money, it’s clear that it will be constrained from a liquidity perspective unless it quickly finds a way to generate meaningful, sustained profits. The company’s financial profile and unique position in the overall AI landscape make it an attractive acquisition target.

SOUN Cash and Equivalents (Quarterly) data from YCharts.

Moreover, recent history shows that big tech companies are very interested in voice-based AI technology. For example, almost 10 years after purchasing the voice assistant Siri, apologize In 2018, it acquired SoundHound AI competitor Shazam for $400 million. microsoft It acquired voice assistant Nuance for $20 billion in 2022. While it wouldn’t be wise to invest in a company based on a possible acquisition, SoundHound could see increased interest in 2024.

If things go well, the company may soar.

Restaurants and auto companies could be among the companies that benefit the most when the Federal Reserve begins cutting interest rates in 2024. Regular shoppers will get a dollar more, which could spark new spending in discretionary areas like restaurant meals or larger purchases like a new car. For this reason, businesses may be eager to invest to better serve their customers, and SoundHound AI appears ready to penetrate this market.

Although the M&A prospects look compelling, I wouldn’t buy SoundHound AI stock purely on acquisition speculation. Instead, I encourage investors to think about the long-term themes here.

Big tech has already demonstrated interest in voice-based AI technology. Given the secular demand driving AI, it wouldn’t be surprising to see other players follow in the tech giant’s footsteps and become strategic partners or investors in SoundHound AI sometime in 2024. This could have a real impact and help with the growth of SoundHound AI in the short term. Get AI developers under the radar and exposed to more institutional investors.

In the long term, this could eventually lead to acquisitions or a share price rebound, generating fantastic returns for investors who buy in at current levels.