Audio and speech recognition company SoundHound AI (SOUN -0.56%) has been clobbered on the stock market ever since it went public in April 2022 after its merger with a special purpose acquisition company (SPAC).

SoundHound AI stock has crashed a whopping 87% since going public. The company’s impressive growth and its artificial intelligence (AI) credentials haven’t been enough to give the stock a boost, which may seem a bit surprising as AI stocks have been in hot demand this year. However, analysts remain upbeat about SoundHound’s prospects.

The stock has a median 12-month price target of $5, according to a consensus of five analysts covering it, which points toward a 150% jump from current levels. The high price target of $7 points toward even stronger gains. But can SoundHound AI stock come out of its mediocrity, go on a bull run, and really deliver the upside analysts are expecting from it?

SoundHound AI’s terrific growth

SoundHound AI is currently in the early stages of its growth. The company released second-quarter 2023 results a couple of months ago and reported a 42% year-over-year spike in revenue to nearly $9 million. SoundHound AI also reported a massive jump of 19 percentage points in the gross margin to 79% last quarter. As a result, the company’s loss per share fell to $0.10, from $0.19 in the prior-year period.

The company’s impressive growth was driven by the growing adoption of its AI-enabled voice and speech platform that allows customers to integrate functions such as conversational voice assistants, text-to-speech, automatic speech recognition, and natural language understanding (which refers to a computer’s ability to understand human language).

SoundHound’s earnings press release pointed out that multiple customers have started using its voice solutions while existing ones are expanding their usage. It is worth noting that the company is targeting multiple markets with its AI-focused voice and speech platform, which should allow the company to sustain its healthy growth rate for a long time.

For instance, the automotive market could turn out to be a key growth driver for SoundHound AI thanks to the growing adoption of AI-enabled voice assistants in vehicles. The company estimates that 55% of the 80 million vehicles sold in 2021 came with voice-enabled assistants. By 2026, the penetration of voice AI assistants in cars is expected to jump to 70%, while the number of vehicles sold is expected to jump to 94 million.

SoundHound AI thinks it can boost its penetration in the automotive market by 15x in the coming years. In all, the company estimates that its total addressable market across various industries could be worth a whopping $160 billion by 2026.

The company expects its revenue to increase nearly 50% in 2023 to $46.5 million at the midpoint of its guidance range, as compared to $31 million last year. However, analysts are anticipating a 62% surge in its revenue next year to $74 million, which won’t be surprising considering the fast-growing markets the company serves.

How much upside can investors expect?

SoundHound AI stock is currently trading at 11.3 times sales, which seems justified considering the impressive pace at which it is growing. It is worth noting that the stock is slightly cheaper now than last year, as it was trading at 13 times sales at the end of 2022, and its slightly lower forward sales multiple of 10.4 points toward a stronger top line.

Assuming SoundHound does hit $74 million in revenue next year and trades at 10 times sales, its market cap could increase to $740 million. That would be 54% higher than the current level. So, even though SoundHound may not be able to match Wall Street’s price target, it still seems on track to deliver healthy gains over the next year. That’s why investors would do well to consider buying this potential AI winner while it remains beaten down and trades at a relatively attractive valuation.

Harsh Chauhan 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.

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