Finance
These are my best AI stocks to buy in August
Let’s be honest. After the stunning launch of OpenAI’s ChatGPT in late 2022, the generative artificial intelligence (AI) industry is more hype than substance. While hardware makers like it Nvidia or Advanced micro devices have made tons of money selling the chips needed to run and train these complex algorithms, there have been noticeably fewer profits on the consumer-facing software side of the opportunity.
SoundHound AI (NASDAQ: SOUND) could help change this dynamic with its industry-leading AI voice and speech recognition software, which is already attracting real-world examples. Here’s how this growth story could unfold over the next five years and beyond.
What is SoundHound AI?
Founded in 2005 and went public through a special target acquisition company (SPAC) merger in 2022, SoundHound AI was in the right place at the right time to capitalize on the AI-related hype. Before going public, it developed several audio technology products, including in-car music and voice recognition software. Now it can combine these platforms with major language models (LLMs) to create more value for consumers.
First quarter 2024 revenue rose 73% year over year to $11.6 million. That said, SoundHound is still unprofitable with an operating loss of $28.5 million in the period
Company currently spends more than its quarterly revenue on research and development ($14.9 million). While these outflows slow profitability in the short term, it can help position the company for future success.
What could the next five years have in store?
For investors, the most exciting thing about SoundHound’s software is its obvious practicality. When combined with conversational LLMs, speech recognition software can easily replace human workers in fast-food restaurant drive-thrus and other restaurant applications. This disruption could happen relatively quickly, given the rapid improvement in technology.
In 2023, SoundHound signed a deal with US hamburger chain White Castle to bring AI-driven orders to more than 100 locations by the end of the year. This has followed through an aggressive acquisition spree that includes buying out AI customer service SYNQ3 and Allset, an online ordering platform designed to help restaurants bypass delivery apps.
In the long term, SoundHound wants to create a synergistic ecosystem where consumers can order food and other objects of their vehicles, phones and smart devices without the intervention of a third party. These acquisitions can help the company acquire the workforce and technology to realize this vision.
Expect competition to increase
The biggest challenge for SoundHound, and perhaps for AI software in general, will be the lack of one economic moat — which is one unique advantage that can differentiate a company from its rivals. While SoundHound may have gained an early lead in voice-based AI technology, competition is sure to follow suit. And this could hurt the company’s growth potential and margins.
The good news is that as an early mover, SoundHound could leverage brand recognition and network effects to give itself an edge over new rivals. The company is also partially backed by the leading AI chipmaker Nvidia, which bought $3.7 million worth of shares in February. Although this purchase is relatively small, it is a vote of confidence in SoundHound and could signal a future partnership between the two companies.
Is SoundHound Stock a Buy?
Immediately price-to-sales (P/S) multiple At around 24, SoundHound stock is not cheap. For context: the S&P500 The index averages a price-to-earnings ratio of around 3. That said, SoundHound isn’t your average company: it’s an innovative software stock focused on a new and disruptive industry. And its valuation is in line with other AI companies Nvidia, with a P/S of 32.
You often get what you pay for in the stock market. And companies with big potential usually trades at a premium. SoundHound stock appears poised to outperform over the next five years and beyond.
Should you invest $1,000 in SoundHound AI now?
Consider the following before purchasing shares in SoundHound AI:
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Wil Ebiefung has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has one disclosure policy.
These are my best AI stocks to buy in August was originally published by The Motley Fool
