1 Genius AI Stock That Could Be a Great Buy for July

Key Points

• SoundHound AI has been growing at an incredible pace.

• The stock isn't cheap on a price-to-sales basis, but it's also not expensive considering its growth rate.

• Management is forecasting sustainable long-term growth.

• 10 stocks we like better than SoundHound AI ›

A wide range of artificial intelligence (AI) stocks are available for you to choose from, ranging from the over-hyped to the undervalued: The task for investors is to uncover the best investments that can be bought at solid prices. One that I think could be a genius buy in July is Soundhound AI (NASDAQ: SOUN).

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SoundHound AI is a pure-play AI stock that is focused on integrating speech recognition with AI models -- an important field. The company is growing rapidly and its share price has soared in the three years since it joined the public market, but its stock is not as expensive as you might think, considering its expected growth rate. It has immense upside if it can continue growing at its current pace.

Image source: Getty Images.

SoundHound AI's technology is being rapidly adopted

Speech recognition AI models aren't a new idea. Popular versions such as Alexa and Siri have been in wide use for years. However, those models can be quite frustrating when they misunderstand what you're saying. SoundHound AI's model is far more accurate. In fact, it has been found to outperform human counterparts in many situations. The goal of SoundHound AI is to bring human-like interactions to all digital encounters. Companies can save money on personnel by deploying SoundHound's agents to handle an array of customer interactions.

The company is still in a relatively early stage of pursuing its market, and so far, most of the software's deployments have involved restaurant drive-thrus and digital assistants in vehicles. However, SoundHound's software is experiencing rapid adoption by companies in other industries, such as healthcare and finance.

SoundHound AI's growth rate was a jaw-dropping 151% year over year in Q1. For the full year, management is guiding for 97% growth. If SoundHound AI can hit that level and keep it up, it could be one of the top AI stocks to own over the next few years.

However, investors must keep in mind the risks. SoundHound is deeply unprofitable, which should come as no surprise given that it's focused more on capturing market share in its emerging field right now. So if you're looking for profits, you'll have to be patient. SoundHound AI is years away from delivering any positive cash flows. Still, I think it can be a great buy now for one simple reason.

SOUN Operating Margin (Quarterly) data by YCharts.

SoundHound AI's stock valuation isn't as expensive as you'd think

SoundHound AI stock trades at a premium valuation, but it's not as high as you might expect for a company that's projected to nearly double its revenue in 2025.

SOUN PS Ratio data by YCharts.

At 40 times sales, SoundHound AI's stock is far from cheap, but if it can maintain its growth rate, this valuation will be slashed in half within a short time frame, leaving a stock that could be primed for massive upside.

Essentially, there is only a bit over a year's worth of growth baked into the stock price, as most software companies trade between 10 and 20 times sales. For SoundHound AI to return to the high end of that range, it needs to double its sales from this level. Considering the massive growth projected for 2025 and the company's substantial revenue backlog -- $1.2 billion at the end of 2024, compared to just $85 million in total 2024 revenue -- there are still several years of incredibly strong growth ahead for SoundHound AI's top line.

If it can't deliver that growth, the stock would face serious downside risk -- but I think the odds of that happening are fairly slim. Because of that, I view SoundHound AI as an excellent stock to add to your portfolio in July.

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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.