SoundHound AI is one of Nvidia’s latest bets. What does the future hold for the company?
Nvidia is arguably the hottest stock in tech. All eyes are on her every move, so when she discovered a strong position in an artificial intelligence (AI) company. SoundHound AI (SOUNDBITE -0.98%) last February, small-cap stocks rose over 50% in one day.
Even if some are hearing about it for the first time, SoundHound is far from a new company. It’s been around since the mid-2000s when it was introduced as a music discovery app, rivaling Shazam. It recently pivoted and is now a leader in AI-powered voice recognition.
The stock tripled at its peak in March and has since cooled after the company posted somewhat disappointing numbers. Its fourth-quarter 2023 revenue of $17.2 million missed estimates of $17.8 million, while it posted a net loss per share of $0.07 versus the $0.06 expected.
Despite a somewhat disappointing fourth quarter, the company looks back on track after revealing its first quarter 2024 numbers. Still, the stock is down 50% from its peak in March, so is now the time to pounce? Let’s take a look at what the company has up its sleeve and some of the challenges ahead.
Relationships are key and SoundHound has some impressive friends
SoundHound has an impressive list of partners. First, the obvious, Nvidia. You don’t usually buy 1.7 million shares of a company unless you believe it has something special and can deliver. Of course, companies make investments that don’t pan out all the time, but an endorsement from a company of Nvidia’s caliber — one that seems to have a crystal ball when it comes to AI — is reason enough to be interested.
Most importantly, however, this relationship means the integration of the companies’ products and technologies. SoundHound’s premiere product, Chat AI, will power voice and text interactions with Nvidia’s DRIVE platform, Nvidia’s solution for autonomous driving. Nvidia’s success is SoundHound’s.
Beyond Nvidia, SoundHound’s technology is already used by major automotive companies such as HondaKia, and Hyundai. Used by technology companies like Square, The burdenAND Motorola. It’s even used at White Castle to make ordering your burger that much easier. This is not an exhaustive list, but the point is that SoundHound has great players who want to play ball with it.
The technology is impressive
Ultimately, SoundHound needs to deliver on its technology to succeed. Market-leading technology is what makes it unique. So what is special about it?
SoundHound’s aim is that voice interaction is the future. It is the most intuitive and natural way for people to communicate. However, up until this point, voice chatbots have been very much lagging behind. SoundHound claims that its interactions are real-time and provide a much deeper contextual understanding of what is being asked of it than you can experience with Siri or Alexa.
Remember the integration with Nvidia DRIVE? SoundHound just announced that it will be able to work offline, that is, not connected to the cloud. Nvidia’s chips and SoundHound’s technology will allow it to process locally on the machine it’s being used on. Chatbots normally require a cloud connection. Now, if you lose service, it still works.
SoundHound has also integrated monetization directly into its services. This is a critical aspect. Users can be served ads that are relevant to the context of what they are doing. For example, suppose you get into a car and ask for directions home. It’s 7pm Your car shows you the way home and then asks if you’re hungry. You say yes and that pizza sounds good. Your car then tells you that Little Caesar’s is running a special.
This is what led to massive success for Alphabetof Google. It became the primary way in which people interacted with the Internet, so it was able to sell the most valuable advertising space. Now we expect ads when we go online, it’s just a part of life. If more and more interactions are mediated by voice, this becomes premium real estate advertising.
Several major obstacles stand in her way
The elephant in the room is the rest of Big Tech. The likes of Google, AppleAND Amazon have developed their own sound technology. They are obviously working to integrate their existing technology with advances in AI. It’s a long shot that given the tremendous time and resources of Big Tech, they don’t develop something comparable in technical prowess to SoundHound’s products.
This wouldn’t spell the end for SoundHound by any means, but it does put a pretty significant cap on the total market it can go after, as well as potentially introducing some pretty tough competition in the markets it’s already doing well.
A potential advantage of one of these companies developing a SoundHound-compatible product is that it could force a purchase of SoundHound at a premium price. If Google, say, feels left behind by Apple (or vice versa), it could look to scoop up SoundHound or agree to license its technology for a pretty penny.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Nvidia and Oracle. The Motley Fool has a disclosure policy.
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