Prediction: This AI Stock Could Create $18 Billion in Shareholder Value by 2030

Key Points

• SoundHound AI is expanding from its initial targeted industries.

• SoundHound AI's stock has a premium valuation.

• If management's projections are correct, SoundHound AI will be a big winner over the next five years.

• 10 stocks we like better than SoundHound AI ›

Although the AI arms race has been ongoing for several years, there are still plenty of companies that are starting to see increased demand because they're on the application side of AI. One of those is SoundHound AI (NASDAQ: SOUN). SoundHound AI incorporates AI technology with best-in-class audio recognition, creating a product that can be used to automate nearly any human-to-human interaction that isn't done face to face.

The market opportunity for SoundHound AI's software is massive, and it's already seeing huge growth. I think SoundHound AI could create $18 billion in shareholder value by 2030, a massive increase from its $7 billion market cap.

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SoundHound AI is seeing growth in a new sector

SoundHound AI saw initial success in two industries: restaurants and automotive (with digital assistants in vehicles). This allowed SoundHound AI to get a solid footing and create a few clients that are unlikely to move away from its software. Outside of those initial sectors, SoundHound AI is also seeing success in the healthcare and financial service industries.

SoundHound AI noted in its Q2 results that 7 of the top 10 financial institutions are clients, and four of them either renewed or increased their usage. This is a positive sign for investors, as it shows that a new client base is seeing tremendous value from SoundHound AI's product. As these clients become more comfortable with the performance of SoundHound AI's platform, they will likely expand the areas that are being automated, which can help reduce operating costs. This makes SoundHound AI a platform that could pay for itself over time, and businesses that can provide solutions that pay for themselves have historically been fantastic investments.

This could create substantial shareholder value, but just how much can SoundHound AI grow by?

SoundHound AI's long-term growth rate projection is incredible

During its Q2 conference call, management was asked about how much organic growth investors can expect moving forward. This is a key metric to understand, as SoundHound AI has made several sizable acquisitions over the past few years. Organic growth refers to revenue growth that comes from pre-existing business units. While SoundHound AI's overall growth rate for Q2 was an impressive 217%, that doesn't paint the full picture because some of that growth came from a business that didn't exist last year, so it throws the comparison off.

While management didn't give an exact organic growth rate for Q2, they implied that it was at least 50%, and that they expect that 50% or greater organic growth rate to continue for the foreseeable future. That's quite impressive, and if SoundHound AI can deliver on that promise, it will create a ton of shareholder value.

Let's say SoundHound AI achieves its full-year revenue guidance of $169 million. If it can grow its revenue at a 50% pace through 2030, that would indicate annual revenue of $1.28 billion. That's a huge increase and points toward nearly a 10x in total revenue. However, not all of that will be converted into an increase in its stock price due to its high valuation.

The market is well aware of SoundHound AI's growth potential, and it has given it a premium valuation as a result. SoundHound AI's stock trades for more than 50 times sales, which is a massive premium over the 10 to 20 times sales at which most software companies trade.

SOUN PS Ratio data by YCharts

So, if we factor in SoundHound AI's valuation returning to a more reasonable 20 times sales, that would imply a stock that has a market cap of $25.7 billion. Compared to today's $7.3 billion market cap, that would be an increase of $18.4 billion. That would indicate SoundHound AI's stock more than tripling over the next five years.

That sounds like a great investment to me, and places SoundHound AI at the top of my investing list if management's proposal pans out. There's no guarantee that SoundHound AI can deliver that level of growth, so there is some risk with the stock. However, investors can manage this risk by keeping their position sizing relatively small. That way, if it turns out to be a winning investment, investors can reap the gains. But if it goes to $0, it won't affect overall returns much.

SoundHound AI is a promising AI investment, and if it pans out like management believes, it could add significant shareholder value.

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Keithen Drury has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.