Shares of voice control innovator SoundHound AI (NASDAQ: SOUN) sprung to life in the spring of 2024, as artificial intelligence (AI) giant Nvidia (NASDAQ: NVDA) unveiled a rare investment in the stock. But the soaring jump didn’t last. On July 1, SoundHound AI’s stock price sits 56% below the peak of early March.
I see no reason to despair over SoundHound AI’s recent price drop, though. If anything, it’s a welcome price correction that gives growth investors a chance to pick up a few shares on the cheap.
What SoundHound AI does
SoundHound AI is all about voice AI and conversational intelligence technologies, which are becoming as crucial as having Wi-Fi at a coffee shop. Many companies are exploring this universe, but SoundHound AI started building a unique technology platform when smartphones still felt new and fresh. Its voice analysis relies on advanced AI tools, honed against billions of song identification and phone-menu interactions over the years.
And it’s more than a cool tech demonstration. SoundHound AI has a backlog of long-term contracts worth $682 million, with locked-in clients ranging from automakers and consumer electronics giants to restaurant chains and customer service call centers.
That’s a lot of contract-bound promises waiting to be turned into revenue, and the market seems to be snoozing on this fact. SoundHound AI’s stock should start to rise as the backlog is converted into proper revenue streams.
SoundHound AI’s strategic moves
The company isn’t resting on its laurels, either. In fact, SoundHound AI has been busy with potentially game-changing moves in recent months.
On June 10, SoundHound AI paid off the last of its $100 million debt. This move saved it over $55 million in interest and fees, freeing up $14 million of restricted cash. With $180 million in cash and no debt, it’s ready to pounce on new opportunities.
Less than two weeks later, on June 20, the company snapped up key assets from Allset, an online ordering platform. This is a strategic play to build a voice-based e-commerce empire. Imagine ordering your favorite cheeseburger just by talking to your car, or addressing your smart TV from the couch. SoundHound AI’s voice control capability paired with Allset’s food service expertise gives consumers a whole new set of options for easily grabbing some wings or pizza slices.
And lastly, on June 27, SoundHound AI converted its entire class of preferred stock into common stock. It’s not a huge game-changer, since the 475,000 preferred shares are but a drop in the bucket next to 217 million Class A shares. Still, this move simplifies the company’s capital structure and eliminates the preferred stock. It also removes the obligation to pay quarterly dividends to preferred shareholders, which amounted to $343,000 in the most recent quarter. That’s helpful for a small company with a deep thirst for more cash to fuel its long-term growth ambitions.
Why SoundHound AI is a smart buy right now
Yes, SoundHound AI is still unprofitable, and its valuation ratios might make you raise an eyebrow. The stock is changing hands at 25.3 times trailing sales, and profit-based ratios don’t make any sense at all. But with a nearly $700 million order backlog and strategic moves that would make a chess grandmaster proud, its future looks bright. SoundHound AI’s recent actions show it’s serious about growth and has the financial muscle to back it up.
Sure, there might be some bumps along the way, but the potential payoff makes it all worthwhile. SoundHound AI’s innovative voice tech and substantial backlog suggest that this is just the beginning of its growth story. For those who enjoy a bit of excitement and can handle a few twists and turns along the way, SoundHound AI could be your ticket to impressive returns. And the nearly 50% price drop looks like an invitation to buy the stock today.
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Anders Bylund has positions in Nvidia and SoundHound AI. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
1 Growth Stock Down 56% to Buy Right Now was originally published by The Motley Fool
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