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This artificial intelligence (AI) stock is up 217% since November 1st. Should investors expect a stock split in 2025?

I’ve written a lot about it SoundHound AI (SOUN -1.06%) this year. In early 2024, the company secured a multimillion-dollar investment Nvidiathe world’s largest provider of graphics processing units (GPUs) with artificial intelligence (AI). I believed that this partnership was a huge vote of confidence for what was then a relatively small AI company.

A lot has changed in the last few weeks. Since the beginning of November, the value of SoundHound shares has risen about 217%, adding billions of dollars to its market capitalization. Could the company do a stock split in 2025? The answer to this question might surprise you.

Two reasons why this AI stock is becoming increasingly popular

AI is perhaps the hottest category on the market right now. Nvidia, one of the industry’s main suppliers, is the second most valuable company in the world. The stock prices of most AI companies saw a huge boost in the first quarters of 2024. Somehow, SoundHound’s stock went relatively under the radar. Shares jumped in the first quarter of the year after Nvidia announced a $3.7 million investment in the company. But stocks soon cooled off and failed to post a meaningful rise for the rest of the year – so far.

What caught the market’s attention? Perhaps the company’s small market cap — the entire company was valued at less than $2 billion in early November — has finally turned into a plus. There just aren’t that many small, publicly traded AI companies anymore. SoundHound’s relatively small size may have allowed it to stay under the radar, but those days appear to be over, as the company is now worth more than $5 billion.

However, the biggest factor in SoundHound’s recent boom is likely a sharp increase in revenue growth expectations. This summer, estimates for quarterly sales growth were around 50%. Today, those expectations have almost doubled to 96.7%. That’s a huge difference that should mean two things. First, SoundHound probably deserves a higher price-to-sales (P/S) ratio than before, when expectations were lower. And second, the company may have a larger and longer growth path ahead of it than most analysts thought.

As the name suggests, SoundHound is involved in bringing the magic of AI to the world of sound. The company has reached agreements with fast food restaurants to streamline their drive-thru ordering systems, with consumer goods companies to support customer support, and with several vehicle brands to provide voice recognition and AI assistants to drivers. Research suggests that this market is growing between 15 and 20% per year. However, SoundHound’s growth rates are well above industry levels, suggesting that the company has superior technology and market fit compared to the competition.

Currently, SoundHound’s biggest competitors may be big tech companies, most of which are developing their own voice AI platforms. But with several hundred patents and decades of operating experience, you can expect one of these Big Tech companies to acquire SoundHound and integrate its patents into its own technology stack. The purchase price would be low compared to the purchasing power of these companies. And SoundHound clearly has something customers want right now. In these early days of AI, SoundHound is on a promising path.

SOUN horsepower ratio chart

SOUN horsepower ratio data from YCharts.

Will SoundHound do a stock split in 2025?

SoundHound clearly has a promising business future, even though its share price is a hefty 63 times sales. If sales continue to double every year, that expensive multiple could be worth it. Time will tell.

But how about a stock split? Is there one nearby for this hot stock? Probably not. Even after the recent rise, shares are still trading between $10 and $15 – nowhere near high enough to typically justify a stock split. However, if the company maintains its valuation metrics and growth rates, a stock split could conceivably occur in a few years. However, a stock split in 2025 is currently very unlikely.

Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in Nvidia and recommends it. The Motley Fool has a disclosure policy.

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