SoundHound poised for growth in AI revolution

The rapid adoption of artificial intelligence is changing how people interact with devices – even their cars. SoundHound AI (Nasdaq: SOUN) is still a small company, but it’s emerging as a leader in voice recognition technology. It’s poised for substantial growth, with over 155 patents and an impressive list of customers that includes major brands in the restaurant, auto and tech industries.

Its product SoundHound Chat AI is already providing conversational voice assistance in many devices; its voice recognition technology combines with leading large language models like OpenAI’s ChatGPT to deliver comprehensive answers to questions. Validation of its technology can be seen in its growth so far, with revenue up 54% year over year in the second quarter.

The company is looking to expand across several industries, including health care and insurance. To accelerate its market expansion, it just bought a leading enterprise AI software provider, Amelia, for $80 million. It also has a valuable partnership with AI chip leader Nvidia to provide generative-AI chat capabilities in cars powered by Nvidia Drive.

The stock has been volatile since it went public in 2022, but its recent market cap of just $1.9 billion might significantly undervalue its opportunity in a generative AI market that Statista projects will reach $356 billion by 2030. If you’re a risk-tolerant long-term investor seeking a small-cap stock with wealth-building potential, you might want to take a closer look at SoundHound AI.

Ask the Fool

Q. I see that the semiconductor company Intel suspended its dividend in August. What does that mean? Is Intel to be avoided? – C.S., Warren, Ohio

A. Many companies elect to pay dividends once they’ve become financially capable of sustaining them, with relatively reliable earnings. Managements never want to reduce or stop dividend payments, as that will signal trouble, but sometimes they have little choice.

Intel has been struggling in recent years, in part due to missed opportunities, manufacturing delays and growing competition. It’s working on turning itself around, and many have high hopes for its newer energy-efficient chips, but the company may not return to its former level of glory. In the meantime, by suspending its dividend payments, it can spend that money on growth initiatives.

If you’re interested in investing in Intel, read a lot more about the risks and opportunities it faces.

Q. What’s the “rule of 40”? – P.M., Houston

A. It’s meant to be a quick way to evaluate whether a software company – especially a software-as-a-service company – is attractive. The rule suggests adding the annual revenue growth rate of a company and its net profit margin to see if the total is 40 or higher. So a company with 30% annual revenue growth and a 15% profit margin would have a score of 45, which would pass, while it wouldn’t pass with only a 5% profit margin.

The rule balances revenue growth and profitability, allowing strength in one to make up for weakness in the other. This can help you assess younger companies that are not yet very profitable. But following the rule rigidly might lead you to ignore an attractive business that’s on its way to greatness.

My smartest investment

My best financial decision was buying 100 shares of Facebook – now Meta Platforms – at $42 apiece, despite the objections from my financial adviser. I still own the shares and expect Meta to grow even further. – W.P., via email

The Fool responds: Bravo! Meta Platforms has been a terrific performer for a long time, recently averaging annual gains of 25% over the past five years and more than 21% over the past decade. Its stock price soared more than 180% in 2023 (compared to a very respectable 27% for the S&P 500 index), though of course no one should expect such high performance each year. It recently sported a market value near $1.4 trillion.

You aren’t alone in expecting great things from the company, which changed its name to reflect its operations beyond its flagship social media site. Meta Platforms now encompasses Messenger, Instagram and WhatsApp, among other services. It’s also investing in artificial intelligence while expanding into immersive technology via augmented, virtual and mixed reality.

It’s a giant in digital advertising, serving more than 3 billion people each day. That huge network gives it many opportunities to grow in different directions. Still, a rosy future isn’t guaranteed, and various growth initiatives may not pan out.