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SoundHound AI, Inc. (SOUN) has been one of the most searched-for stocks on Zacks.com lately. So, you might want to look at some of the facts that could shape the stock's performance in the near term.
Over the past month, shares of this company have returned -3.8%, compared to the Zacks S&P 500 composite's +1.5% change. During this period, the Zacks Computers - IT Services industry, which SoundHound AI falls in, has gained 6.1%. The key question now is: What could be the stock's future direction?
Although media reports or rumors about a significant change in a company's business prospects usually cause its stock to trend and lead to an immediate price change, there are always certain fundamental factors that ultimately drive the buy-and-hold decision.
Revisions to Earnings Estimates
Rather than focusing on anything else, we at Zacks prioritize evaluating the change in a company's earnings projection. This is because we believe the fair value for its stock is determined by the present value of its future stream of earnings.
We essentially look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest business trends. And if earnings estimates go up for a company, the fair value for its stock goes up. A higher fair value than the current market price drives investors' interest in buying the stock, leading to its price moving higher. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.
For the current quarter, SoundHound AI is expected to post a loss of $0.08 per share, indicating a change of +11.1% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.
For the current fiscal year, the consensus earnings estimate of -$0.36 points to a change of +5.3% from the prior year. Over the last 30 days, this estimate has remained unchanged.
For the next fiscal year, the consensus earnings estimate of -$0.21 indicates a change of +41.7% from what SoundHound AI is expected to report a year ago. Over the past month, the estimate has remained unchanged.
With an impressive externally audited track record, our proprietary stock rating tool -- the Zacks Rank -- is a more conclusive indicator of a stock's near-term price performance, as it effectively harnesses the power of earnings estimate revisions. The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #3 (Hold) for SoundHound AI.
The chart below shows the evolution of the company's forward 12-month consensus EPS estimate:
12 Month EPS
Projected Revenue Growth
While earnings growth is arguably the most superior indicator of a company's financial health, nothing happens as such if a business isn't able to grow its revenues. After all, it's nearly impossible for a company to increase its earnings for an extended period without increasing its revenues. So, it's important to know a company's potential revenue growth.
In the case of SoundHound AI, the consensus sales estimate of $23.68 million for the current quarter points to a year-over-year change of +78.5%. The $82.59 million and $151.87 million estimates for the current and next fiscal years indicate changes of +80.1% and +83.9%, respectively.
Last Reported Results and Surprise History
SoundHound AI reported revenues of $13.46 million in the last reported quarter, representing a year-over-year change of +53.8%. EPS of -$0.11 for the same period compares with -$0.10 a year ago.
Compared to the Zacks Consensus Estimate of $13.01 million, the reported revenues represent a surprise of +3.47%. The EPS surprise was -22.22%.
Over the last four quarters, the company surpassed EPS estimates just once. The company topped consensus revenue estimates three times over this period.
Valuation
Without considering a stock's valuation, no investment decision can be efficient. In predicting a stock's future price performance, it's crucial to determine whether its current price correctly reflects the intrinsic value of the underlying business and the company's growth prospects.
Comparing the current value of a company's valuation multiples, such as its price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF), to its own historical values helps ascertain whether its stock is fairly valued, overvalued, or undervalued, whereas comparing the company relative to its peers on these parameters gives a good sense of how reasonable its stock price is.
The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to both traditional and unconventional valuation metrics to grade stocks from A to F (an An is better than a B; a B is better than a C; and so on), is pretty helpful in identifying whether a stock is overvalued, rightly valued, or temporarily undervalued.
SoundHound AI is graded F on this front, indicating that it is trading at a premium to its peers. Click here to see the values of some of the valuation metrics that have driven this grade.
Bottom Line
The facts discussed here and much other information on Zacks.com might help determine whether or not it's worthwhile paying attention to the market buzz about SoundHound AI. However, its Zacks Rank #3 does suggest that it may perform in line with the broader market in the near term.
Zacks Investment Research
When deciding whether to buy, sell, or hold a stock, investors often rely on analyst recommendations. Media reports about rating changes by these brokerage-firm-employed (or sell-side) analysts often influence a stock's price, but are they really important?
Let's take a look at what these Wall Street heavyweights have to say about SoundHound AI, Inc. (SOUN) before we discuss the reliability of brokerage recommendations and how to use them to your advantage.
SoundHound AI currently has an average brokerage recommendation (ABR) of 1.33, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell, etc.) made by six brokerage firms. An ABR of 1.33 approximates between Strong Buy and Buy.
Of the six recommendations that derive the current ABR, five are Strong Buy, representing 83.3% of all recommendations.
Brokerage Recommendation Trends for SOUN
While the ABR calls for buying SoundHound AI, it may not be wise to make an investment decision solely based on this information. Several studies have shown limited to no success of brokerage recommendations in guiding investors to pick stocks with the best price increase potential.
Do you wonder why? As a result of the vested interest of brokerage firms in a stock they cover, their analysts tend to rate it with a strong positive bias. According to our research, brokerage firms assign five "Strong Buy" recommendations for every "Strong Sell" recommendation.
This means that the interests of these institutions are not always aligned with those of retail investors, giving little insight into the direction of a stock's future price movement. It would therefore be best to use this information to validate your own analysis or a tool that has proven to be highly effective at predicting stock price movements.
Zacks Rank, our proprietary stock rating tool with an impressive externally audited track record, categorizes stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), and is an effective indicator of a stock's price performance in the near future. Therefore, using the ABR to validate the Zacks Rank could be an efficient way of making a profitable investment decision.
Zacks Rank Should Not Be Confused With ABR
Although both Zacks Rank and ABR are displayed in a range of 1-5, they are different measures altogether.
The ABR is calculated solely based on brokerage recommendations and is typically displayed with decimals (example: 1.28). In contrast, the Zacks Rank is a quantitative model allowing investors to harness the power of earnings estimate revisions. It is displayed in whole numbers -- 1 to 5.
Analysts employed by brokerage firms have been and continue to be overly optimistic with their recommendations. Since the ratings issued by these analysts are more favorable than their research would support because of the vested interest of their employers, they mislead investors far more often than they guide.
On the other hand, earnings estimate revisions are at the core of the Zacks Rank. And empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.
Furthermore, the different grades of the Zacks Rank are applied proportionately across all stocks for which brokerage analysts provide earnings estimates for the current year. In other words, at all times, this tool maintains a balance among the five ranks it assigns.
Another key difference between the ABR and Zacks Rank is freshness. The ABR is not necessarily up-to-date when you look at it. But, since brokerage analysts keep revising their earnings estimates to account for a company's changing business trends, and their actions get reflected in the Zacks Rank quickly enough, it is always timely in indicating future price movements.
Should You Invest in SOUN?
Looking at the earnings estimate revisions for SoundHound AI, the Zacks Consensus Estimate for the current year has remained unchanged over the past month at -$0.36.
Analysts' steady views regarding the company's earnings prospects, as indicated by an unchanged consensus estimate, could be a legitimate reason for the stock to perform in line with the broader market in the near term.
The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #3 (Hold) for SoundHound AI. You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here
It may therefore be prudent to be a little cautious with the Buy-equivalent ABR for SoundHound AI.
Zacks Investment Research
SoundHound AI SOUN shares have declined 10.5% in the past month, underperforming the Zacks Computer & Technology sector’s fall of 1.3% and the Zacks Computers – IT Services industry’s return of 6.3%.
Year to date, the stock has gained a massive 117.9%, outperforming industry peers like ServiceNow NOW, Infosys INFY and Vertiv VRT over the same timeframe. NOW, INFY and VRT shares have gained 21.1%, 23.1% and 55.1%, respectively.
SoundHound AI has been benefiting from a strong portfolio, a solid partner base and an expanding clientele. SOUN offers conversational intelligence through independent Voice AI solutions in 25 languages in both cloud-enabled and hardware-embedded devices.
However, despite a strong AI-powered portfolio, SOUN’s modest near-term earnings prospects have been negatively impacting share price movement.
So, are these modest near-term prospects a bother for investors, or does SOUN’s strong AI-driven portfolio offer further growth opportunities?
One Month Performance
Let’s dig deep to find out.
SOUN’s Earnings Estimates Trending Downward
SoundHound AI now expects revenues to be $80 million and $150 million for 2024 and 2025, respectively, including the contribution from the recently announced acquisition of Amelia.
The Zacks Consensus Estimate for SOUN’s 2024 revenues is pegged at $82.59 million, indicating year-over-year growth of 80.05%. The consensus mark for 2024 loss is pegged at 36 cents per share, which has widened by a penny over the past 30 days.
For 2025, the consensus mark for revenues is pegged at $151.87 million, suggesting year-over-year growth of 83.87%. The Zacks Consensus Estimate for 2025 loss is pegged at 21 cents per share, which has widened by a couple of cents over the past 30 days.
SoundHound AI, Inc. Price and Consensus
SoundHound AI, Inc. price-consensus-chart | SoundHound AI, Inc. Quote
SOUN Stock Benefits From AI-Backed Portfolio
SOUN’s prospects benefit from a massive addressable market worth more than $140 billion that includes diverse industries like automotive, restaurants, customer service, entertainment, Smart TVs and Internet of Things powered devices.
SoundHound AI’s prospects benefit from its expanding footprint in industries like automotive and restaurants, driven by its innovative portfolio. It currently has more than 270 patents, with over 155 granted and more than 115 pending.
The strong demand for SoundHound Chat AI and AI Customer Service solutions is noteworthy. Generative AI (GenAI) presents a significant growth opportunity for SoundHound AI’s prospects. Enterprise spending on GenAI is projected to grow 15-fold over the next three years to nearly $250 billion.
Automotive presents a significant growth opportunity for SOUN. TAM for the global light vehicle auto market is currently pegged at roughly 88 million and is expected to hit 95 million units by 2028.
SOUN has strengthened its footprint in the automotive industry by introducing its advanced SoundHound Chat AI voice assistant, integrated with ChatGPT, into Peugeot, Opel and Vauxhall vehicles across 11 European markets, including Austria, France, Germany, Italy, Spain and the U.K.
It recently announced that the SoundHound Chat AI voice assistant has launched a new customization tool to help transform how automotive brands interact with their customers within the vehicle.
SOUN’s collaborations with NVIDIA, ARM, Perplexity, Olo and Oracle are expanding its portfolio. SoundHound AI launched an advanced in-vehicle voice assistant leveraging NVIDIA DRIVE, enabling real-time and generative AI capabilities for seamless, offline access to vehicle intelligence and personalized assistance.
SoundHound AI partnered with Perplexity to enhance SoundHound Chat AI through the integration of Perplexity’s online Large Language Model capabilities for advanced, real-time voice assistant responses.
TAM for the restaurant market is currently pegged at roughly $3.3 trillion and is expected to hit $4.4 trillion units by 2028, thereby offering significant growth prospects for SoundHound AI.
SOUN Shares Overvalued
SOUN stock is not so cheap, as the Value Score of F suggests a stretched valuation at this moment.
In terms of the forward 12-month Price/Sales ratio, SoundHound AI is trading at 12.69X, higher than the Zacks Computer & Technology sector’s 5.87X.
Price/Sales Ratio (F12M)
SOUN is a Risky Bet for Investors
SOUN’s innovative AI-powered portfolio makes it well-positioned to benefit from the strong TAM of global automotive and restaurant markets. This bodes well for long-term investors.
However, SoundHound AI currently has a Growth Score of D, which means it is a risky bet for growth-oriented investors. Stretched valuation makes the stock unattractive at this moment.
SOUN currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks Investment Research
SoundHound AI Inc SOUN.O:
SOUNDHOUND CHAT AI AUTOMOTIVE INTRODUCES NEW TOOLS FOR ADVANCED VOICE ASSISTANT CUSTOMIZATION
Source text for Eikon: (Full Story)
Further company coverage: SOUN.O
Aug 28 (Reuters) - SoundHound AI Inc SOUN.O:
SOUNDHOUND AI ANNOUNCES PARTNERSHIP WITH MUSC HEALTH TO TRANSFORM PATIENT ACCESS WITH AI AGENTS
Source text for Eikon: (Full Story)
Further company coverage: SOUN.O
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