Artificial intelligence is playing an increasingly significant role in the technology sector, with SoundHound AI (NASDAQ: SOUN) standing out as a notable beneficiary on Thursday. Focused on speech and dialogue recognition, SOUN shares have surged following positive feedback from Cantor Fitzgerald. Despite this uptick, the company’s stock is trading at a premium relative to its earnings, indicating a need for caution.
In a recent client report, scientist Brett Knoblauch highlighted the more attractive valuation of SOUN shares following a recent decline. He emphasized that the potential for upside gains outweighs the internal challenges, prompting a revision in the rating from the earlier downgrade on [March 21]. Knoblauch noted that both the upside potential and downside risks are now more balanced, leading to a shift in the rating.
Knoblauch acknowledged that SOUN stock is currently priced higher than the industry average, but he upgraded his stance from “underweight” to a “neutral” evaluation. While maintaining a price target of $4.90, suggesting a 9% increase from the previous day’s close, he pointed out factors that could drive SOUN stock higher, including positive momentum in the company’s core operations. Notably, SoundHound recently announced the integration of its voice-assistant technology into Japanese vehicles.
Despite the positive outlook, concerns linger over the rich valuation of SOUN stock. According to GuruFocus, the stock is trading at a 24.62x trailing twelve-month sales multiple, significantly higher than the industry median of 2.25x. However, analysts foresee substantial revenue growth for SOUN, with projections indicating a 51.5% increase in the recent fiscal year and a further 47.9% growth expected by 2025. The most optimistic sales estimate for 2025 stands at $105.72 million, reflecting potential growth opportunities for the company.
Looking ahead, Wall Street analysts maintain a consensus “buy” rating on SOUN shares, with an average price target of $7.15, implying a potential upside of nearly 55%. While opinions on the stock remain divided, the overall sentiment leans towards optimism regarding SoundHound’s future prospects.
Please note that the opinions expressed in this article are solely those of the writer, and Josh Enomoto, the former senior business analyst for Sony Electronics, has no current positions in the stocks discussed. His insights have provided valuable perspectives across various industries, offering unique insights for investors and market participants alike.
