Difficult to value, but still valuable

If a company is not currently making profits, it can be difficult to assign a value to it because unprofitable companies do not have a price-to-earnings (P/E) ratio. So when it comes to companies like SoundHound AI (NASDAQ:SOUN), potential investors need to find other ways to evaluate them.

More precisely, investors should consider a company’s value in one, five, or more years. This is especially the case with SoundHound AI. That’s because artificial intelligence (AI) stocks tend to be measured by the expected growth in generative AI adoption.

This makes it more difficult to assess the value of SoundHound AI, but at least we have some recent data to consider. After all, forward-thinking investors may be willing to forgive a company’s current earnings shortfall if it plans continued growth in future quarters.

Specific, untapped AI niches

The gen-AI movement of the past few years began when high school students discovered that they could use OpenAI’s ChatGPT website to instantly generate essays that could pass a plagiarism checker. It wasn’t long before almost every large company felt the need to integrate generative AI and began bragging about it on conference calls.

Almost immediately, stock traders began looking for niche beneficiaries in the AI ​​market. They identified NVIDIA (NASDAQ:NVDA) stock as the perfect play because all these new Gen-AI applications require powerful processors.

It may be old news by now, but chances are you should look into some untapped niche AI ​​industries. I’m not claiming to be Magellan, but I think the market hasn’t really discovered voice recognition AI yet. The most obvious and immediate player for investors in this fast-growing niche is SoundHound AI stock, which specializes in voice-activated AI.

Two uses for voice AI are in vehicles and internet-enabled household objects (also known as the Internet of Things or IoT). For example, last March, SoundHound AI partnered with Netherlands-based global automaker Stellantis (NYSE:STLA). The two companies collaborated to bring cutting-edge automotive AI voice capabilities to Japan using SoundHound AI’s automotive voice assistant integrated with ChatGPT’s gen-AI technology in Stellantis’ vehicles.

Earlier this month, SoundHound AI teamed up with Perplexity, a provider of conversational AI-based answer engines. Through this partnership, Perplexity will provide online Large Language Model (LLM) capabilities to the SoundHound Chat AI voice assistant for use in automotive and IoT devices.

All of this is very exciting, but keep in mind that SoundHound AI is still very speculative. Yes, probably in the near future, all newly manufactured cars will be equipped with Gen-AI voice capabilities. SoundHound AI could be the first to market, especially considering its collaboration with Stellantis. But it’s difficult to know if and when this will happen, and just as importantly, whether it will translate into quarterly profits for SoundHound AI.

Sales increased but income decreased

Let’s see where the data takes us. SoundHound AI’s first quarter financial press release is still fresh, and there’s one data point that definitely stands out.

Remarkably, the company’s revenue increased 73% year over year to $11.594 million. You can’t blame SoundHound AI Chief Financial Officer Nitesh Sharan for bragging after delivering such strong first quarter sales.

“We were delighted to start the year off with a solid top performance in our strongest first quarter ever,” said Sharan.

But that doesn’t mean SoundHound AI’s financials are perfect in every way. On an adjusted non-GAAP basis, SoundHound AI reported a net loss of $19.884 million, or 7 cents per share, for the first quarter. This compares to a net loss of $17.141 million, or 8 cents per share, in the first quarter of 2023.

It might bother some investors to learn that SoundHound AI isn’t currently looking positive for revenue generation. However, this is a common theme among startups involved in emerging niche technologies. Running a pioneering business is expensive, and the risk of lack of capital cannot be ignored.

On the other hand, if voice-activated AI technology becomes commonplace, SoundHound AI stock could eventually double, triple, or even more.

For example, the company noted, “Applebee’s has expanded its use of voice AI ordering across multiple franchises.”

That means there’s no telling where you can see and hear SoundHound AI’s products. So unless you’re a stickler for short-term profitability, buying a few shares of SoundHound AI stock when it’s under $6 isn’t a terrible idea.

disclaimer: All investments involve risk. Under no circumstances should this article be taken as investment advice or constitute liability for investment profits or losses. The information in this report should not be relied upon for investment decisions. All investors should conduct their own due diligence and consult their own investment advisors when making trading decisions.