SoundHound AI (NASDAQ:SOUN) is positioning itself as a key player in the AI-driven voice customer solutions market. Founded in 2005, this Silicon Valley tech firm boasts hundreds of patents and has secured a range of partnership deals with automakers, restaurants, and other customer service providers.
Like several other notable AI winners, SoundHound has seen its shares soar, climbing over 120% in 2024.
In spite of the market’s bullish outlook, top investor Gary Alexander – ranked among the top 1% of TipRanks’ stock pros – remains cautious about the company’s growth strategy, particularly its focus on external acquisitions.
“While I am impressed by SoundHound’s ability to scale to a ~$150 million revenue run rate by next year, I’m skeptical on the company’s recent M&A binge,” Alexander opined.
The investor is particularly concerned with SoundHound’s recent purchase of Amelia AI, which spotlights the tension between external purchases versus organic R&D. In addition, the acquisition comes with some steep terms.
“The Amelia deal is costly, involving $80 million in cash and stock, $39 million in assumed debt, and generous equity awards for Amelia’s employees,” writes the investor, who adds that existing investors in SoundHound will end up paying the cost of this shareholder dilution.
Another point of concern is SoundHound’s financial health. The company, which has yet to turn a profit, had just over $200 million in cash prior to the Amelia acquisition, adding pressure to its balance sheet, notes the investor.
“With SoundHound’s freewheeling spending on deals and the need to sustain its current cash flow losses of ~$20 million per quarter, it will have limited liquidity to keep pursuing M&A deals,” Alexander explained.
All these reservations bump up against SoundHound’s high valuation, which stands at 10.4x EV/FY25 revenue. Alexander points out that this is higher than others in the industry.
Amidst all these concerns, Alexander is “content to remain on the sidelines,” rating SoundHound AI a Hold (i.e. Neutral). (To watch Alexander’s track record, click here)
This gloomy view, however, clashes with the overarching sentiment on Wall Street. With 4 Buy and 1 Hold ratings, SoundHound AI boasts a Strong Buy consensus rating. Its 12-month average price target of $7.25 implies gains of ~53% in the year to come. (See SOUN stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
