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SoundHound AI Surges Despite Uncertainty in Profitability

SoundHound AI (SOUN) has witnessed impressive stock growth amid the AI boom, rising 429% in 2023. However, concerns about its path to profitability and competition could impact future performance. Is it a buy or sell compared to competitors like Cerence (CRNC)?

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AI Rating:   6

Performance Overview: SoundHound AI (SOUN) has shown a remarkable ascent, climbing 429% since the beginning of 2023, even amidst recent volatility. As a small-cap entity valued at $4 billion, there is ample potential for future growth, especially in the booming AI sector, which attracts significant investor interest.

Revenue Growth and Financials: The report highlights SoundHound's impressive revenue growth of 85%, reaching $84.5 million. Although the company has made several acquisitions recently, raising questions about organic growth, this rate surpasses the performance of its competitor Cerence (CRNC), which had a revenue increase of only 12.5% to $331.5 million but is facing anticipated declines in the next fiscal year due to losing a contract with Toyota. Analysts project SoundHound's revenue will range between $157 million to $177 million for the current year, indicating a promising trajectory. This growth can attract bullish sentiment among investors seeking opportunities in the AI space.

Profitability Considerations: Despite its impressive growth metrics, SoundHound has posted an adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) loss of $61.9 million, indicating it is still far from achieving profitability. Conversely, Cerence achieved an adjusted net income of $56.1 million in the same period, showcasing its established position. This aspect could deter risk-averse investors considering a position in SoundHound amid its uncertain profitability timeline.
Market Sentiment: Investors are also wary of the competition from tech giants like Amazon, Alphabet, and Apple entering the voice tech sector, which could hinder SoundHound's market share. While robust growth can be celebrated, the looming profitability issue could lead to volatility in stock prices depending on quarterly earnings reports and guidance. In contrast, Cerence’s profitability—which is backed by significant auto OEM partnerships—provides a sense of stability and could draw conservative investors.

Stocks:  SOUN CRNC GM F BMW