This Quiet AI Company Could Be the Next Big Winner

The dramatic rise in tech stocks over the last two years has made a lot of investors wealthier -- and that's something to celebrate! But when we're done patting ourselves on the back for a job well done with Nvidia, Alphabet, and Palantir Technologies, it's time to look for the next big thing.

That's because it's easier to have dramatic gains when you're starting with a smaller market capitalization. Palantir had a market cap of less than $50 billion when I first bought the stock in 2022, and its current $431 billion market cap now makes it one of the largest companies in the world.

Its stock has gained 2,210% since July 2022. And if it were to gain another 2,210% in the next three years, it would have a market cap of $10 trillion -- more than twice as large as the current market leader, Nvidia.

Obviously, that's not happening. To find an artificial intelligence (AI) stock with the potential for a Palantir-size gain over the next three years, we need to examine one that still has significant growth ahead. One that I'm considering right now is a stock I've been skeptical about in the past: SoundHound AI (NASDAQ: SOUN).

Image source: Getty Images.

What is SoundHound AI?

SoundHound operates an AI platform that allows users to have conversations to use voice-enabled services and apps. Voice-enabled products have been around for a long time -- for example, automated customer-service phone numbers and voice assistants such as Siri and Alexa. However, the early iterations of this technology were clunky enough to create significant user frustration.

SoundHound, which went public in 2021, primarily worked in the automotive and restaurant industries before taking a significant step forward in 2024 with its $80 million acquisition of Amelia AI, an AI agent that is customizable for internal use or public-facing applications.

The acquisition pushed SoundHound's corporate client base to more than 200 customers. However, the company still hasn't been able to turn a profit, and investors may have signaled this year that they're becoming concerned about the stock: Shares are down more than 40% this year.

Part of the problem may be the company's third-quarter earnings report, which showed a sharp net loss of $109.3 million, versus a loss of $21.7 million a year ago. The loss wiped out its impressive $42 million in revenue, which was up 68% from a year ago.

However, $66 million of the loss was due to a noncash, nonoperating accounting charge related to previous acquisitions. The adjusted net loss was $13 million, which was an improvement from a year ago. And most importantly, the business ended the quarter with zero debt and cash on hand of $269 million.

In addition, SoundHound is increasing its client base, including by the following:

• A deal to integrate SoundHound Chat AI into "double-digit millions of AI-enabled smart devices" developed by an unnamed Chinese company.
• An agreement with an Italian commercial-vehicle company to install voice AI in its fleet.
• Expansions of the scope of contracts with three top financial services institutions.
• An agreement with a U.S. regional hospital system to deploy the Amelia platform.
• A deal to supply a national full-service restaurant chain with voice-ordering technology.
• An agreement with a telecommunications provider that offers TV and internet in 20 U.S. states.

What should you expect from the stock?

Analysts surveyed by Yahoo! Finance are unanimous in their prediction that SoundHound stock will move higher in the next year. The mean price target of $17.19 is 53% higher than the current stock price; the low price target of $15 is 33% higher.

SoundHound may not replicate Palantir's rapid growth, but I see many similarities between the two companies. Three years ago, in the second quarter of 2022, Palantir was losing money, too -- it posted a net loss in the quarter of $179.3 million as it was building out its platforms.

Management has expanded SoundHound's business model to include a variety of functions, including customer service, sales, marketing, operations, and IT service management. The company has enabled more than 10 billion personalized automated voice conversations annually.

As companies strive to become more efficient and increasingly reliant on AI solutions to streamline their products while still personalizing customer interactions, SoundHound AI's growth is expected to continue. Clearly, I've misjudged this company with my aforementioned skepticism. Because when its quarterly losses start turning into gains, I think the stock will skyrocket in the next few years.

Patrick Sanders has positions in Nvidia and Palantir Technologies. The Motley Fool has positions in and recommends Alphabet, Nvidia, Palantir Technologies, and SoundHound AI. The Motley Fool has a disclosure policy.