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This Artificial Intelligence (ai) Stock Soared 217% Since Nov. 1. Should Investors Expect A Stock Split In 2025?
I've written a lot about SoundHound AI (NASDAQ: SOUN) this year. In early 2024, the company secured a multimillion-dollar investment from Nvidia, the largest supplier of artificial intelligence (AI) graphics processing units (GPUs) on the planet. This partnership, I believed, was a huge vote of confidence for what was then a relatively small AI business.
A lot has changed in recent weeks. Since the start of November, SoundHound shares surged in value by roughly 217%, adding billions of dollars to its market cap. Might the company enact a stock split in 2025? The answer to this question might surprise you.
Two reasons why this AI stock is surging in popularity
AI is perhaps the hottest category of the market right now. Nvidia, one of the industry's main suppliers, is the second-most valuable company in the world. The stock prices for most AI companies went on a huge run in the first few quarters of 2024. Somehow, SoundHound's shares fell relatively under the radar. Shares jumped in the first quarter of the year after Nvidia revealed a $3.7 million investment in the company. But shares soon cooled off, failing to stage any meaningful run for the rest of the year -- until now.
What is it that caught the market's attention? Perhaps the company's diminutive market cap -- the entire company was valued at less than $2 billion at the start of November -- finally turned into a plus. There simply aren't that many small, publicly traded AI companies out there left. SoundHound's relatively small size may have allowed it to stay under the radar, but those days are seemingly over, with the company now valued at more than $5 billion.
The biggest factor in SoundHound's recent explosion, however, is likely a large increase in expectations for revenue growth. This summer, quarterly revenue-growth estimates hovered around 50%. Today, those expectations have nearly doubled to 96.7%. That's a huge difference that should mean two things. First, SoundHound likely deserves a higher price-to-sales (P/S) ratio than it formerly had when expectations were lower. And second, perhaps the company has a larger and longer growth runway ahead of it than most analysts realized.
As its name suggests, SoundHound is involved in bringing the magic of AI to the world of sound. It has deals in place with fast food restaurants to streamline their drive through order systems, with consumer-product companies to help provide customer support, and with several vehicle brands to bring voice recognition and AI assistants to drivers. Research suggests that this market is growing between 15% and 20% per year. But SoundHound's growth rates are far beyond industry levels, suggesting it has superior technology and market fit versus the competition.
Right now, SoundHound's biggest competitors might be Big Tech companies, most of which are developing their own voice AI platforms. But with several hundred patents, plus decades of operating experience, it's reasonable to foresee one of these Big Tech companies scooping up SoundHound and integrating its patents into its own tech stack. The purchase price would be small compared to the spending power of these companies. And SoundHound clearly has something that customers want right now. In these early days of AI, SoundHound is on a promising trajectory.
SOUN PS Ratio data by YCharts.
Will SoundHound enact a stock split in 2025?
SoundHound clearly has a promising business future even though its stock price is trading at a lofty 63 times sales. If sales keep doubling every year, that pricey multiple could be worth it. Time will tell.
But what about a stock split? Is there one around the corner for this hot stock? Likely not. Even after the recent surge, shares still trade between $10 and $15 -- not nearly high enough to typically warrant a stock split. If the company maintains its valuation multiples and growth rates, however, there could foreseeably be a stock split a few years down the road. But for now, a stock split is very unlikely in 2025.
Should you invest $1,000 in SoundHound AI right now?
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
