Piper Sandler Initiates Coverage of SoundHound AI (SOUN) With Overweight, Cites AI Growth Potential

On Tuesday, Piper Sandler initiated coverage of SoundHound AI Inc. (NASDAQ:SOUN) with an Overweight rating and a $12 price target. The firm identifies SoundHound as a direct play on the AI revolution due to its voice AI platform.

Piper Sandler analysts, including James E. Fish and Caden Dahl, highlight SoundHound's competitive advantage in delivering dynamic and real-time conversational AI experiences through its combined Automatic Speech Recognition/ASR and Natural Language Processing/NLP architecture. The company's Houndify platform is used by automotive, IoT, and restaurant organizations to enhance customer experiences and drive efficiencies through voice AI.

Piper Sandler sees quick-service restaurants/QSRs and customer experience as the most promising verticals for SoundHound. A key factor in Piper Sandler's outlook is SoundHound's acquisition of Amelia, which has allowed the company to enter the conversational AI space for contact centers. Analysts estimate this to be a $30 billion addressable market by 2027. Overall, they project a $47 billion serviceable opportunity across use cases by 2027, with SoundHound positioned as an early leader in these markets.

SoundHound is also transitioning to a subscription-based model, with subscription and Over-Time revenues expected to comprise ~90% of total revenues by 2027. Piper Sandler believes that this shift, along with anticipated synergies from the Amelia acquisition, will boost margins, potentially by ~10% over the next few years. However, auto exposure currently accounts for around 25% of global production, and SoundHound's four key OEM clients are expected to see a 4% decline in sales this year. Analysts acknowledge these headwinds but remain bullish long-term.

While we acknowledge the potential of SOUN to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an AI stock that is more promising than SOUN and that has 100x upside potential, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.