After a big move this year, a $9.50 price target doesn't seem like a stretch, but is the stock a buy?
2024 has been a thrill ride for investors in SoundHound AI (SOUN -0.41%). After dropping to a 23% loss by Feb. 5, the artificial intelligence (AI) and voice recognition specialist suddenly reversed course, notching 447% gains from its low and 320% for the year, as of Friday's close. After such a parabolic move, the stock price sits at a more than two-year high and shows no signs of slowing.
One Wall Street analyst believes the stock has additional room to run.
Profiting from interest in AI
DA Davidson analyst Gil Luria raised his price target on SoundHound AI shares to $9.50 from $7.50, while maintaining a buy rating on the shares. This represents potential gains of 14% compared to the stock's closing price on Thursday -- although the stock was within 8% at Monday morning's prices.
The new price target -- the second increase this month by Luria -- comes after SoundHound's financial report and a subsequent meeting with CEO Keyvan Mohajer. The analyst professed "greater clarity" regarding SoundHound's competitive moat and a better understanding of the company's growing backlog.
The spark
Word that Nvidia owned a stake in the company ignited the move, but the company has owned those shares for years, so investors should look further.
Fourth-quarter revenue grew 80% year over year to $17 million, and the company's loss per share was halved. Furthermore, its backlog -- which doubled to $661 million -- was intriguing, but there's a catch. A revised definition states that the subscription backlog "refers to potential revenue achievable," so it isn't contractually obligated.
Management is forecasting revenue of $70 million in 2024 and $100 million by 2025. SoundHound AI's valuation soars with each passing day, now selling for 45 times sales, but the company has yet to generate a profit. Assuming SoundHound AI reaches $100 million in revenue by 2025, that works out to a forward price-to-sales ratio of 26, suggesting investors already have two years of future sales baked into the stock's current valuation.
Investors should exercise care with this high-flyer.
Danny Vena has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
