SoundHound AI (NASDAQ: SOUN) emerged as a top artificial intelligence (AI) stock to own this year after investors learned that Nvidia had invested in the business. It was a great vote of confidence in the up-and-coming voice AI business that the prestigious company invested in its operations. Many retail investors saw this as a sign that SoundHound may be the real deal and the next big AI stock to own.
But when SoundHound reported its earnings numbers, it didn’t exactly prove that it was the next Nvidia, and some of that excitement has cooled off. The company was growing at a fast rate, but its operations have been unprofitable, and it’s been dependent on a particular sector of the economy (automotive) for growth.
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In the company’s most recent earnings report, its revenue numbers looked better and the business appeared more diverse. Does this mean that SoundHound is less risky to invest in? Could this be an ideal time to buy shares of this AI stock?
A big concern for investors is when a business is highly reliant on a single customer. Not only does it mean the company will become dependent on how well that other business is performing, but it can also imply that the products and services it’s offering aren’t as useful to other customers or adaptable to other types of businesses. That can create significant question marks, especially for a company like SoundHound, which is in the early stages of growth.
In SoundHound’s third-quarter results, which went up to the end of September, the company again generated fantastic revenue growth, with sales rising by 89% year over year to $25.1 million. But according to the company’s earnings report, the increase in revenue was primarily due to SoundHound’s recent acquisitions of AI companies Amelia and SYNQ3.
SoundHound says that its largest customer now accounts for 12% of revenue, compared with 72% in the same period last year. A year ago, 90% of its revenue came from the automotive sector, and now, the company’s customer mix is much more varied with automotive, financial services, restaurants, healthcare, and insurance sectors each accounting for 5% to 25% of its top line. Here, too, investors should be careful not to read too much into these results, given the big impact from acquisitions.
When SoundHound announced its acquisition of Amelia, a key benefit was that the business contained a diverse customer base that included “hundreds of large enterprise brands.” By adding the business to its operations, SoundHound has technically diversified its customer base. However, it’s difficult to tell how much of that diversification, if any, came as a result of the company’s organic growth.
