Companies invest in other companies all the time with no fanfare. But heads turn when a company the size and stature of Nvidia(NASDAQ: NVDA) does it. This was the case when an Nvidia filing revealed a $3.7 million position in SoundHound AI(NASDAQ: SOUN). As you can see, the stock shot up overnight.
For perspective, SoundHound has a market cap of around $1 billion, so this investment is well under 1% of its market cap and almost nothing to Nvidia’s nearly $2 trillion market cap. But this wasn’t the only news. SoftBank Group, which invests in many successful tech companies (like Arm Holdings(NASDAQ: ARM), which you can read about here), purchased 1.1 million shares in fourth-quarter 2023. Neither of these investments breaks the bank, but they have investors asking: What exactly does this SoundHound company do, and is it an excellent investment?
What does SoundHound AI do?
The days of a person taking your order at fast-food restaurants are ending. Sure, humans will still be needed to oversee it, but voice recognition technology will do the heavy lifting. Automobiles are also advancing voice recognition and AI-powered virtual assistants. SoundHound’s tech allows people to communicate conversationally to make complex orders or queries. It’s incredible stuff.
As shown below, SoundHound’s software is already deployed by brands like White Castle, Krispy Kreme, and Jersey Mikes, so you may have already used it.
Source: SoundHound AI.
SoundHound has plenty of competition from other tech companies, but it claims it has 260 patents that have been granted or are pending. This is tremendously valuable, even though it isn’t quantified on the financial statements.
The implications for businesses based on cost savings and efficiency are massive. It’s important to acknowledge that jobs will be affected. However, technological advancements, from cars to the internet, create more jobs in the long run.
Is SoundHound stock a buy?
SoundHound makes money through royalties and subscriptions that are usage-based. In other words, the more orders, queries, or volume used, the more SoundHound gets paid. This is a terrific model because sales are recurring and increase dramatically from adoption. SoundHound’s revenue has grown impressively since it went public in April 2022 to $13 million in third-quarter 2023, as depicted below.
SOUN Revenue (Quarterly) Chart
More importantly, the company’s backlog (revenue to be recognized in future periods) grew from $303 million to $342 million year over year.
The company has tremendous potential, but investors should be cautious. SoundHound isn’t profitable or cash flow positive. Marketing, research, and development are expensive, and SoundHound generated cash by selling millions of shares. As you can see below, the share count is up 50% since SoundHound went public, ballooning to 242 million as of Q3.
SOUN Average Diluted Shares Outstanding (Quarterly) Chart
This gives the company the cash it needs to grow (over $100 million on hand as of Q3 2023), but dilutes existing shareholders. Hopefully, the aggressive dilution will end soon. The company forecasts $16 million to $20 million in Q4 2023 sales and predicts becoming EBITDA positive.
Fast-growing, relatively small companies like SoundHound are difficult to value. The $1 billion market cap is expensive for an unprofitable company generating $20 million in quarterly sales. However, if SoundHound’s technology keeps being adopted and sales ramp up, the current price will be a bargain.
Here’s the bottom line: Nvidia’s and SoftBank’s investments lend credibility but should be kept in perspective. SoundHound has a tremendous market opportunity but shaky financials. The stock is best for aggressive investors who don’t mind risk.
Should you invest $1,000 in SoundHound AI right now?
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Bradley Guichard has positions in Nvidia and has the following options: long January 2025 $2 calls on SoundHound AI. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
