This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
It's difficult to make a 147% return in a matter of months, but that's what Nvidia (NASDAQ: NVDA) achieved with a multimillion-dollar investment this year. The investment was one of many AI companies Nvidia decided to back. All were companies that it has worked with in the past, so it presumably knows them quite well. Despite the huge profit, Nvidia appears to be holding on to its fairly recent stock purchases. Investors looking for maximum growth should consider jumping in.
This AI stock could have 1,000% more upside
Less than a year ago, Nvidia ploughed $3.7 million into SoundHound AI (NASDAQ: SOUN) stock. Shares have risen by around 140% since then, but there's reason to believe they could rise another 10 times in value over the long term. But before you invest, there are a few things you need to consider.
At its core, SoundHound AI is a company focused on bringing AI to everything sound-related. From voice assistants to drive-thru ordering, anytime you chat with a speaker, SoundHound AI wants its technology to be there. With more than a decade in operation, the company has amassed more than 200 patents and an impressive customer list that has continued to grow.
In 2022, for example, it signed a seven-year contract with Hyundai to power its voice-driven AI capabilities. Drivers will be able to chat with their vehicles not only to send messages, get directions, or toggle the air conditioning but also to check in on maintenance issues and discuss how the vehicle has been performing. It's impressive stuff. Over the next few years, that giant user manual sold with new cars could be replaced with a simple conversation -- one conducted directly between you and the vehicle.
SoundHound AI has signed several vehicle manufacturers as customers. But it's also in other industries, including restaurants and fast-food chains. Applebee's and White Castle, for instance, are piloting the technology to improve order times and reduce overhead costs. This is perhaps one of the most popular ways we will all be interacting with AI technologies in the near future.
Despite its sizable tech portfolio, growing customer base, and sizable end markets -- not to mention Nvidia's backing -- SoundHound's market cap remains just under $2 billion. To rise 1,000% in value, the company would need to reach a valuation of around $20 billion. That's not much of a stretch in the volatile AI industry, which could be one of the largest growth opportunities in a generation.
Shares trade at a price of 22 times sales, but over the last two years, revenue has grown by more than 150%. If it can replicate these growth rates, shares would trade between 5 and 6 times 2026 revenue. That's a much more palatable valuation, although it will take some patience and execution to get there.
SOUN Market Cap data by YCharts
Should you invest in SoundHound?
Clearly, SoundHound AI's end markets alone would support a $20 billion valuation. According to management, the voice AI market has a total addressable market size of at least $140 billion. SoundHound AI's unique technology can be used across a variety of industries, and its early head start bodes well for its ability to capture a growing share of an otherwise growing opportunity.
But there's a reason SoundHound still trades at a paltry $1.7 billion market cap. The company remains unprofitable, meaning it continually needs to seek financing in order to stay solvent. This limits its ability to invest in research and development, which is perhaps its most valuable use of funds long term.
Research and development spending last year was only around $56 million -- a 30% reduction in its peak spending levels in 2023. Big tech companies, including Apple and Alphabet, are investing billions of dollars in this space. Long-term competition will be intense, and it's not clear whether SoundHound AI has the capital to survive, let alone thrive.
If you're looking for a speculative growth stock with huge long-term potential, SoundHound AI could be for you. Nvidia's backing is certainly a plus. But volatility should remain high, and the potential downside is sizable as well. This is truly a boom or bust investment option for risk-tolerant investors only.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
