Top analyst Gil Lauria pounds the table on SoundHound AI stocks.

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AI stocks are all the rage these days. And Red Hot has been the hottest stock in the AI ​​sector so far this year. SoundHound AI (NASDAQ: SOUN )a Santa Clara, California-based company developing AI solutions for voice applications that can be used in TV, Internet of Things, and customer service.

Since the start of February alone, Soundhound’s stock price has risen 420%. What’s more, SoundHound achieved these gains despite a decline in earnings at the end of February. How did it?

Well, while Soundhound missed out on earnings, it still had plenty of good news to report. Full-year 2023 sales rose 47%, and gross margin increased six full percentage points compared to 2022, helping cut the per-share loss nearly in half, to $0.40 per share. Soundhound performed particularly well in Q4, with sales growth rising to 80%, and gross margin again increasing by six percentage points – but ending at 77%, the lowest this year. Two points better than the margin.

Oh, and losses more than halved year-over-year in Q4 – just $0.07 per share.

Numbers like these are bound to attract attention on Wall Street, and in SoundHound’s case they did. A few weeks after the earnings, SoundHound sat down for an in-person meeting with DA Davidson’s Gil Lauria, a 5-star analyst ranked in the top 4 percent of stocks on the Street.

So what do you need to know about it?

As Luria describes it, SoundHound has a “three-pillar” strategy for growing its business — three major revenue streams. The first of these is royalty payments for each unit of technology (be it a car, television or something else) that uses SoundHound’s voice AI capabilities. Soundhound owns 25% of that market, and royalties currently make up 90% of its revenue.

SoundHound’s second pillar, or revenue stream, is businesses that pay subscriptions to access SoundHound’s voice AI capabilities. The company cited restaurant chains White Castle and Jersey Mike’s as two customers using SoundHound to take power orders at their drive-throughs. Last year, such voice AI subscriptions made up less than 10% of SoundHound’s revenue base — but the company expects that percentage to double (pun intended) in short order.

Third and finally, SoundHound is working to create a third revenue pillar by combining its first two pillars. Essentially, the company wants to use voice AI to empower its car driver customers to place drive-thru orders to its restaurant customers – before they even get to the restaurant. The company’s purchase of SNYQ3 Restaurant Solutions, announced in December 2023, will begin the growth of this new pillar through its existing relationships with 10,000 restaurants nationwide, “including every Chipotle nationwide.” (emphasis added).

Eventually, SoundHound expects each of these three pillars to grow to more than $1 billion in business, at which point each will comprise about 33% of the company’s revenue stream — well above SoundHound’s current position. Jump up to $46 million-a-year – the business is generating 90% of its revenue from Pillar 1 alone.

It’s in anticipation of that day that Loria is recommending that investors “buy” Soundhound stock, which he prices at $9.50 a share. (To see Luria’s track record, click here)

So, that’s DA Davidson’s theory, what does the rest of the Street have in mind? The current approach presents a conundrum. On the one hand, based on 4 buy ratings and only 1 hold, the stock’s consensus rating of buy is strong. However, after soaring so high this year, analysts expect the shares to cool and expect a 17% decline in the coming months.

It will be interesting to see if analysts upgrade their price targets as they try to capitalize on SOUN’s continued rally. (See SOUN Stock Forecast)

Top analyst Gil Lauria pounds the table on SoundHound AI stocks. 4

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Disclaimer: The opinions expressed in this article are solely those of prominent analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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