It’s 2025, and the generative artificial intelligence (AI) hype cycle is getting a little long in the tooth. Over the next three years, the companies that dominate this opportunity must turn industry excitement into concrete results. Let’s dig deeper to see if SoundHound AI’s (SOUN 10.32%) innovative take on audio and speech recognition could help it beat the market.
A moment of reckoning for the AI industry?
2025 may prove to be a year of reckoning for the AI industry. Since the launch of OpenAI’s ChatGPT in late 2022, the majority of investor returns have come from the infrastructure side of the opportunity — where companies like Nvidia make the graphics processing units (GPUs) and other types of hardware needed to run and train AI models.
However, new low-cost models like DeepSeek’s could undermine the profitability of AI infrastructure-based business models while (possibly) bringing down operating costs for consumer-facing software providers like SoundHound. This story has yet to play out. However, over the coming years, investors should expect software as a service (SaaS) to be an increasingly important driver of AI industry growth and profits.
Synergizing audio and speech recognition with LLMs
SoundHound has a clear opportunity to help bring generative AI into the mainstream. The company has been working on speech and audio recognition technology since its founding in 2005 — putting it in a prime position to turn large language models (LLMs) into truly conversational experiences. The goal is to allow humans to interact with machines with the same ease and convenience as talking to another human.
Over the long term, the synergy between these technologies could pave the way for lifelike and intelligent robots. However, SoundHound focuses on more accessible use cases, like cars and restaurants.
The company has already secured a bevy of high-profile clients. These include the restaurant chain White Castle (which pledged to implement its voice recognition in 100 drive-thru kiosks in 2024) and electric vehicle start-up Lucid Group, which uses SoundHound’s software to power its voice control feature. According to Lucid’s CEO, the automotive assistant will help with questions about vehicle functionality and real-time queries about sports, weather, or the stock market.
Image source: Getty Images.
At least some of SoundHound’s automotive assistant tech is powered by third-party LLM technology developed by OpenAI’s ChatGPT. While this could imply that SoundHound has a shallow economic moat because it hasn’t built an industry-leading LLM of its own, this setup allows it to focus on what it does best (sound and voice recognition) while benefiting from the innovation and competition between the different LLM developers.
Business is booming — but how is the valuation?
Unsurprisingly, SoundHound is posting impressive growth as more clients implement its voice AI solutions. Third-quarter revenue jumped 89% year over year to $25.1 million. The company has also dramatically diversified its customer base, with only 12% of this quarter’s sales coming from its largest client compared to 72% in the prior-year period.
Investors should expect growth to accelerate even further over the coming years because of SoundHound’s relatively small size and recent acquisitions, like the $80 million buyout of Amelia AI, which builds corporate AI agents for internal use. Amelia adds corporate clients like healthcare giant Teva Pharmaceuticals and IT company Fujitsu and is expected to generate a whopping $150 million in 2025.
But while SoundHound’s growth prospects look excellent, it is still far from profitability. Third-quarter operating losses ballooned 132% to $33.8 million. And like with many speculative growth-focused businesses, this problem could worsen before it gets better. With a price-to-sales ratio of 65 (compared to the S&P 500 average of 2.8), SoundHound’s valuation doesn’t seem to account for these potential challenges. Shares may underperform over the next three years as AI hype dies down.
Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
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