This Synthetic Intelligence (AI) Inventory Appears Set for a Second-Half Comeback

What if I informed you that there’s a synthetic intelligence (AI) inventory that outperformed each Nvidia and Palantir Applied sciences final 12 months?

That is proper: In 2024, shares of SoundHound AI (SOUN 1.38%) rose by 836%, handily outperforming among the largest darlings of the AI narrative.

This 12 months has been a unique story, nevertheless. By the primary half of the 12 months, SoundHound AI inventory plummeted by 46%.

Let’s break down what piqued traders’ curiosity in SoundHound AI to start with. From there, I am going to element among the elements that impressed traders to run for the hills throughout the first six months of the 12 months.

Whereas SoundHound AI could appear like a relic of the previous, sensible traders perceive the corporate is positioned to capitalize on two rising themes throughout the broader AI realm.

Is now a great time to put money into the SoundHound AI sell-off? Learn on to search out out.

What fueled SoundHound’s rise to start with?

SoundHound AI burst onto the scene after securities filings revealed that Nvidia held a small fairness place within the firm. The mere affiliation with Nvidia — AI’s largest darling to this point — was sufficient to get traders creating all kinds of narratives about how the 2 firms may very well be working collectively.

SoundHound AI operates in a singular and fairly under-the-radar pocket of the AI realm. By the ability of pure language processing (NLP), SoundHound has constructed voice-powered AI assistants, not not like Amazon’s Alexa or Apple‘s Siri, which are used throughout many various industries.

Sadly for individuals who invested in SoundHound AI at its peak late final 12 months, the inventory suffered an intense sell-off all through the primary half of the 12 months. Considerably paradoxically, a key issue behind the nosedive was Nvidia. New regulatory filings revealed that the chip king had exited its place in SoundHound AI, probably inspiring widespread skepticism and a bearish sentiment across the AI voice developer.

Picture supply: Getty Photographs.

What may very well be in retailer for SoundHound AI throughout the second half of the 12 months?

One of many largest use instances for SoundHound AI’s voice assistants is within the automotive business. The corporate has partnered with a lot of main auto producers, together with Stellantis, Hyundai, Honda, and Lucid.

The worth add right here is that voice assistants will be built-in into infotainment and navigation methods inside automobiles, providing drivers a brand new degree of comfort. In response to a examine commissioned by SoundHound AI, these methods signify a $35 billion alternative for the automotive business.

I believe autonomous driving may quickly turn out to be a extra mainstream AI use case. SoundHound AI could have a profitable alternative to broaden its present footprint within the automotive business by changing into a key companion in growing sensible working methods for automobiles.

Alphabet‘s self-driving taxi fleet, Waymo, is presently obtainable in 5 main metropolitan cities and completes greater than 250,000 paid rides per week. Furthermore, Waymo’s partnership with Uber helps deepen the strategic worth autonomous driving presents for main industries reminiscent of ride-hailing and supply. Lastly, Tesla lastly joined the get together following the launch of its Robotaxi service in Austin, Texas final month.

Because the autonomous car panorama transitions from a interval of analysis and improvement to the early phases of monetization and business scale, SoundHound AI seems to be uniquely poised to benefit from the chance.

Is SoundHound AI inventory a purchase proper now?

Though SoundHound AI’s share value has plummeted, the corporate’s valuation continues to be stretched. Per the chart beneath, SoundHound AI boasts a price-to-sales (P/S) a number of of 42. For context, that is about the place main web shares peaked throughout the dot-com bubble of the late Nineties.

SOUN PS Ratio knowledge by YCharts

I convey these dynamics as much as stress that regardless that SoundHound AI inventory may look “low cost,” the underlying valuation means that shares are nonetheless hovering round bubble ranges — and that is even after a near-50% decline within the inventory value.

Whereas I stay inquisitive about SoundHound’s skill to learn from the rise of autonomous driving and the combination of AI-powered voice software program, I believe the inventory matches squarely into the speculative class.

Though shares may rebound throughout the second half of the 12 months, this can probably be induced extra by extra narrative-driven shopping for than by concrete alternatives. With that mentioned, I see SoundHound AI as extra of a commerce and fewer so a long-term “buy-and-hold” funding alternative at the moment.