SoundHound AI (NASDAQ: SOUN) will advance by triple digits in 2025 because it is the leading play on conversational AI. The company is well-positioned in a world where AI is rapidly advancing and AI-enabled services are expected to dominate, providing a suite of services and apps that connect brands of all varieties with people meaningfully.
SoundHound’s 2024 results takeaways are that this company is gaining traction with more than 200 brands using its products, including companies like Hyundai (OTCMKTS: HYMTF), Snap (NYSE: SNAP), and Pandora, and growth is accelerating. Not only is growth accelerating for this tech stock, but it is accelerating at a hyper-growth pace and is expected to continue accelerating in 2025. Trends, including persistent outperformance and guidance increases, suggest the outlook for 2025 is also cautious, providing fuel for a sustained rally that will include an analyst upgrade cycle
SoundHound Outperforms High Bar: Market Yawns
SoundHound AI had a stunning Q3 marred only by the analysts and market expecting strength and whisper figures aligned with the results. However, the company’s revenue growth accelerated to 88.6%, with revenue of $25.09 million outpacing the consensus reported by MarketBeat by nearly 900 basis points. Strength was seen in all end markets as scaling and penetration combined to drive growth.
The sales mix is critical to the outlook, and diversification and concentration have improved significantly compared to last year when the bulk of revenue came from a single client. This year, revenue gains are spread between a wider selection of clients. The largest client only contributed 12% to the revenue compared to 72% last year, with significant sales in automotive, restaurants, financial services, and insurance; all industries forecasted to make significant productivity gains with AI.
The company continues to post GAAP and adjusted losses, but the burn is offset by investment. Its operations include scaling capability, improving the breadth of offerings, and acquiring new clients, which are paying off in revenue gains and increased business momentum. The takeaway is that Q3 losses were less than expected, with the adjusted loss of $0.04 being $0.03 better than forecasted.
SoundHound Raises Guidance: Guidance is Likely Cautious
SoundHound issued favorable guidance for the year and next, expecting growth to accelerate sequentially to 95% in Q4 and over 100% in 2025. The guidance is likely cautious because of the increasing momentum; as it is, the company has increased the guidance every quarter this year and will likely outperform and raise guidance again at the end of the fiscal year.
Factors in favor of increasing the guidance include several new client wins in Q3 and deepening penetration of existing clients, including Chipotle Mexican Grill (NYSE: CMG) and Casey’s General Stores (NASDAQ: CASY), which are both growing their operations. Factors favoring future guidance increases also include easing monetary headwinds and a business-friendly administration, which is expected to create economic tailwinds.
The price action in SoundHound is bullish despite the post-Q3-release pullback. The pullback shaved 10% off the price in pre-opening trading and may take the market even lower. However, the market for SOUN stock is still above critical support targets and will likely trigger a rebound when it is touched. The critical support target is near $6.45, and highs that were set in July 2024; if that level is broken, a move to $5 or lower is possible. The more likely scenario is that this market will confirm support at $6.45 or higher and consolidate near that level before regaining upward momentum later this year or in early 2025. The critical resistance is near $10; when that is broken, a move to $14.00 is likely to come quickly.
