Generative AI has been the stock market’s focal point over the past year and it’s no wonder. Companies associated with the game-changing tech have been spearheading the market’s gains.
While many AI-related stocks have had some big rallies over the past year, most recently, one name has been taking out all others. Fueled by the news Nvidia has a stake in it, throughout February, shares of SoundHound AI (NASDAQ:SOUN) have been on an absolute tear, adding 282% over the course of the month.
Even without Nvidia’s help, Northland’s Michael Latimore, a 5-star analyst rated in the top 2% of the Street’s stock pros, thinks the voice recognition specialist has plenty going for it, calling it a “top pick for 2024.”
“SOUN is not just a pure play on AI, but a pure play on conversational AI, one of the prime AI use cases,” the 5-star analyst elaborated. “ChatGPT is the poster child for conversational AI, especially in the consumer realm. With natural language processing (NLP) advancements, such as from SoundHound and OpenAI, computers can interact with consumers in a highly human-like manner, including with emotions.”
Conversational AI, such as virtual agents, presents a solution for enterprises to enhance customer experience while reducing costs. One emerging use case is seen in the restaurant and drive-thru industry. Here, SoundHound has demonstrated an impressive order completion rate of over 85% with its tech, surpassing human performance.
That said, despite the evident benefits of SoundHound’s conversational AI, Latimore thinks the practical challenges associated with implementing virtual assistants in the restaurant industry, particularly in drive-thrus, are worth monitoring this year. “This could limit revenue upside in our view,” says the analyst.
Moreover, Latimore flags a different concern unrelated to the company’s quality but rather linked to the strength of its recent surge. He views the current valuation, at 28x FY24 and 17x FY25 revenue, as “pricey relative to rule of 40 metrics.”
As a result, Latimore has downgraded his rating on SOUN from Outperform (i.e. Buy) to Market Perform (i.e. neutral), although he has raised his price target from $4 to $5.5. However, the new target still sits 13% below the current price. (To track Latimore’s performance, click here)
Only 2 other analysts have been tracking SOUN’s progress and both remain positive, making the consensus view here a Moderate Buy. That said, it’s quite possible other analysts might update their models shortly, considering the $4.67 average target factors in a 26% decline over the coming months. (See SOUN stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
