A small business in a fast-growing industry is a recipe for the potential to become millionaires. And with shares up a whopping 347% year-to-date as of this writing, SoundHound AI (NASDAQ:SOUN) has emerged as a leader in the development of voice-based artificial intelligence (AI).

But is it too late for new investors to get in? Let’s dig deeper to see what the future holds.

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Analysts remain optimistic about the long-term potential of the AI ​​industry. Bloomberg assumes that the sales opportunities could grow many times over average annual growth rate (GACR) from 42% to $1.3 trillion by 2032. This forecast assumes that capital expenditure Be The data put into AI training hardware will create the conditions for this the acceptance of Software solutions that make life easier for companies and their consumers.

SoundHound AI could play a role in this transition through its voice AI platform, which aims to enable customers to deliver low-impact experiences to their users. The technology has clear applications in customer service, restaurant drive-thru and car assistants. And the company has signed agreements with key industry players such as the global automaker Stellantiswhich will integrate SoundHound AI’s voice assistant into several of its brands.

Speech recognition software is nothing new. And SoundHound AI won’t be the only company combining this technology large language models (LLMs) behind platforms like ChatGPT. Against this backdrop, rapid expansion could be the key to building an economic moat. As a larger company, SoundHound AI would likely have more customer relationships and more data to improve its software.

Probably the most important The ingredient of a millionaire stock is growth, and SoundHound AI has that in spades. Sales grew 89% in the third quarter year after year to $25.1 million as the company added new customers in the restaurant, healthcare and financial industries.

Acquisitions appear to be an important part of management’s expansion strategy. And clean This quarter, SoundHound AI completed its $80 million acquisition of Amelia, maker of a customizable AI agent for back-office tasks like employee onboarding. The deal gives SoundHound AI access to Amelia’s clients, which include high-profile names like BNP Paribas, Teva PharmaceuticalsAnd Fujitsu, and the The deal could add $45 million in revenue in 2025.

However, SoundHound AI is not without its challenges. Like many growth-oriented companies, it is far from profitable, with operating losses more than doubling to $33.7 million in the period. The good news is that as Software as a Service (SaaS) provider SoundHound AI’s business model tends to have better margins than companies that sell physical products.

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In the third quarter, the company generated gross profit of $15 million (gross margin of 49%). give him a way achieve a profitable operation by maintaining growth while controlling overhead costs (e.g. advertising and research). Additionally, the company has $136.4 million in cash and equivalents on its balance sheet, allowing it to maintain its current cash burn for several more quarters without the need for debt capital.

SoundHound AI has two of the most important factors that give a stock multi-bagger potential: small size (with a market cap of $2.9 billion) and a huge addressable market. That is, the company’s shares have already has tripled this year and is therefore a Price-sales ratio (P/S) Multiple of 42. That’s 13 times S&P 500 Average of 3.15.

However, while stocks trade for a gigantic Premium could add SoundHound AI to its valuation if it maintains or accelerates the growth seen in the third quarter. The stock appears to be a winner in the long term, but investors may want to wait for a dip before buying shares.

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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.

Is SoundHound AI a millionaire stock? was originally published by The Motley Fool