Is SoundHound AI the Top Artificial Intelligence Stock to Buy in June?

SoundHound AI (NASDAQ: SOUN) is one of the more popular small company picks in the AI realm. With a market capitalization of less than $4 billion, SoundHound could have a huge runway if its products continue to resonate with clients.

But is it the best AI stock to buy in June? Let's take a look.

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SoundHound AI is tackling multiple markets with its products

SoundHound AI has taken a different approach to AI than many companies. Instead of focusing on interacting with a generative AI model by using text input from a keyboard, it uses audio inputs. This isn't anything innovative or new; AI assistants like Siri or Alexa have been around for a long time, and have frustrated users for that same duration.

However, SoundHound AI's products are far superior to some others and have even been found to outperform human counterparts in some applications, such as taking orders at drive-thru restaurants.

The potential for SoundHound's products is massive, as anything where a human talks to transmit information is a potential target for SoundHound AI's software. In addition to restaurants, some of the biggest target areas for SoundHound are automotive (digital assistants), finance, and healthcare. However, SoundHound has products for many other markets as well.

There's a massive market for SoundHound AI's technology, but how is the company doing now?

SoundHound's growth has been astronomical

SoundHound's results back up its potential, as revenue increased a 151% year over year in the first quarter. Total revenue was only $29.1 million, which gives investors an idea of how relatively small SoundHound AI is.

As should be expected for a rapidly growing and small company, SoundHound AI is deeply unprofitable. Still, I'm not docking any points for this, as it's wisely spending its resources to capture as much market share as possible.

Image source: Getty Images.

For the full year, management expects revenue of $157 million to $177 million, indicating 97% revenue growth from a year ago. That's an impressive figure that showcases the strong demand for SoundHound AI's product.

SoundHound AI's growth is up to par for a stock of its stature, but it still has to trade at a reasonable valuation to be considered a buy.

SoundHound AI is expensive, but for good reason

Because SoundHound AI is unprofitable, the only metric we have to value the stock is its price-to-sales (P/S) ratio. Normally, software companies trade between 10 and 20 times sales, but SoundHound AI is far more expensive.

SOUN PS Ratio data by YCharts

At 36 times sales, SoundHound AI is far more expensive than the normal P/S range for software stocks. However, it's also not common to see companies projecting that their revenue will double over the next year. Should SoundHound AI hit the middle range of its sales target ($167 million), it would be valued at 23.9 times projected 2025 sales.

Once again, that's still not cheap. However, if SoundHound AI can deliver a 2026 that's similar in growth to 2025, then it could transform the stock into a rocket ship. With how small SoundHound AI's revenue base is and how wide a potential market it's tackling, this could easily happen. However, if it doesn't, the stock will likely crash due to high expectations already built into the stock price.

Considering that, I don't think SoundHound AI is the best AI stock to buy in June. However, I think it's a solid pick as long as investors understand what they're getting into. SoundHound AI is a high-risk, high-reward stock. As a result, investors need to keep their position sizing in mind and likely devote no more than 1% of total portfolio value to SoundHound. That way, it can still provide meaningful results to your portfolio if it succeeds but won't harm it much if it declines significantly in 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.