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If you believe you should really be worried about AI taking over humans’ jobs in the future, you’re probably right; the take-over has already begun. SoundHound AI (NASDAQ: SOUN), a specialist in voice-based AI technology, has deployed AI tools that are actively replacing human workers in the service industry. SOUN stock price could very well take off as a result.
One example of its many successes is its collaboration with popular burger chain White Castle, which led to the replacement of customer service agents in several stores with AI bots that performed even better than their human counterparts.
In addition to a steadily growing stream of revenue, the company also has a wide base of interested clients, securing an impressive $342 million in backlogs. This all makes it, I believe, both a golden opportunity for investors and a serious concern for workers in various industries. So let us take a closer look at SoundHound’s performance and future prospects to see if it’s really worth the buzz.
What is Conversational AI?
SoundHound AI (SOUN) specializes in conversational AI, but what exactly is this field? Suppose, for example, that you call a restaurant to place an order or make a complaint, but instead of a customer service agent taking your order or complaint, the AI program would perform the same task.
These programs require the development of complex AI tools that can analyze human speech and emotions, consider contextual factors, and then produce a meaningful response. This is not new cutting-edge technology. As a matter of fact, you might have already been using it. A classic example of already widely used conversational AI is, of course, Apple’s (NASDAQ: AAPL) voice assistant, Siri.
Obviously, the possible applications of such tools are endless. Generalizing from the restaurant example, AI voice assistants can be used anywhere: handling customers in the service industry and assisting vehicle drivers are only two of the many possible applications. It can allow businesses to reduce operating costs by relying on machines instead of humans. This is not to say that cost reduction is the only benefit; as we will see in a bit, AI sometimes, worryingly enough, performs even better than humans in some cases.
Now, SoundHound AI, with a market cap of around $506 million, has been a successful and promising provider of conversational AI technology since going public in 2022. It has been developing several innovative products, including its Smart Answering and Smart Ordering, which are AI-based systems that handle various customer service tasks.
SoundHound’s Recent Performance
One of SoundHound’s most notable successes is its partnership with burger chain White Castle, where it implemented an AI-based system for handling customer orders. The system achieved an order completion rate of 90% and an average order processing speed of less than 60 seconds. To put things in perspective, these numbers are claimed by SoundHound to surprisingly even surpass human-based benchmarks.
So SoundHound’s ordering system does not only offer a way for businesses to reduce costs, but it also improves their service quality and efficiency at the same time.
Considering the quality of SoundHound’s services, it shouldn’t be surprising that several businesses are teaming up with it. Samsung will soon offer new drive-thru displays powered by its AI services, Krispy Kreme and Jersey Mike will have it automate their in-store customer ordering, and Olo, an online restaurant ordering software, will include an AI-assistant developed by the company as well. This is just to name a few instances of cooperation between SoundHound and famous clients.
Adding to its existing portfolio of clients, SoundHound has recently announced an acquisition of SYNQ3, a start-up specializing in restaurant solutions. SYNQ3 is being used in approximately 10,000 restaurants, and the deal will bring up the total number of SoundHound’s restaurant clients to around 25 chains.
The SYNQ3 deal will cost SoundHound around $25 million, with an additional $4 million to be paid if the newly merged entity is successful and certain targets are achieved over the next three years. 20% of the funds for this deal will come from SoundHound’s cash reserves, with the remaining 80% being supplied through stock.
The deal, as such, will only cost SoundHound $5 million in cash. This is a wise move on the company’s part since the lack of cash could soon become a problem.
Outside the restaurant world, Soundhound has ventured into the automotive industry, providing in-cabin voice assistants for vehicles, partnering with Hyundai, DS Automobiles, and Togg, a manufacturer of electric cars based in Turkey.
Looking at its latest quarterly report, their sales have been growing significantly: its revenue of $13.3 million in Q3 2023 is a 52% improvement on the prior quarter.
As for the upcoming quarter, management expects the revenue to grow anywhere between $16 million and $20 million, which gives a growth rate between 68% and 111%, a very optimistic and encouraging estimate.
Another significant indicator of growth is management’s prediction that EBITDA will be positive, compared to a negative EBITDA of $18.6 million in Q4 2022.
We all know that AIs replacing humans is an eventuality. To that end, if you are a big restaurant chain that decided to ride the AI wave, Soundhound would probably be your first pick given that they have successfully implemented their tech and, as we all know, big companies would rather pay more, to avoid service interruptions or quality drops. If that happened, we could definitely see the SOUN stock soar.
This is not to mention the very real possibility of an acquisition: big tech has shown time and time again an interest in conversational AI technology. Just think of Apple’s famous acquisition of Siri and its $400 million acquisition of Shazam, SoundHound’s competitor, in 2018.
More recently, Microsoft (NASDAQ: MSFT) acquired Nuance in 2022 for $20 billion. So, it’s not crazy to think a tech giant could soon acquire an up-and-coming company with a proven track record. With that in mind, having a small position now in the company as an acquisition play might end up putting some nice cash in our pockets.
Speaking of cash, however, it is unfortunate that SoundHound doesn’t have much of it yet. This takes us to the risks you could be taking if you decide to invest in SOUN stock.
Cash is a Problem for the Company
The company is not yet making profits: in Q3 of 2023, despite the growth mentioned earlier in revenue and despite the shrinkage of operating loss from $38.2 million to $28.8 million, it still reported an operating loss of $14.5 million.
The natural question to ask now is whether a cash burn could pose a significant threat to SoundHound moving forward.
Over the past nine months, the total amount of cash burnt by SoundHound has reached $54.4 million, meaning that the burn rate per quarter is $18.1 million. Seeing as the company has around $110 million in cash as of Q3 2023, it seems that it may only have a few months before running out of cash. This is worrying.
But this is not the whole story. As mentioned earlier, we know that the company has $342 million bookings on its balance sheet. These bookings should provide a steady stream of income to the company and show that the company’s products and services are highly sought after. In addition to that, the company is actively reducing its operating costs.
SOUN Stock Forecast
Overall, the company seems like a promising candidate for immense success. AI voice technology has a lot of potential for replacing human agents across many service industries and that it can be integrated with many products, as in the case of the automobile industry or Olo, the restaurant ordering software.
More generally, SoundHound has an expanding client base and is a prominent part of a tremendously growing industry. AI stocks absolutely soared in 2023, with several companies reaching growth rates of 50% or more over the year.
Researchers predict that the size of the market will continue to grow to an outstanding 1000% of its current value by 2030. The conversational AI market alone is expected by some to generate $42 billion in revenue in 2030, a dazzling 553% improvement on the $7.6 billion of 2022.
It is unsurprising, then, that an average of five Wall Street analysts think that SOUN stock is going to almost double over the next year, jumping from its current value of $2.10 to around $5 by the end of 2024. Others also believe its top line could hit $96 million next year.
Still, caution is required, given the cash burn issue and the fact that the predicted growth is based on speculation regarding the growth of the conversational AI market and the interest big tech may have in striking an acquisition deal. So, in the end, SOUN stock could be a good investment for investors who are comfortable with these risks.
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