Key Points
The artificial intelligence (AI) infrastructure buildout has been a big subject in recent times as tech players aim to keep up with growing demand for computing power. Jensen Huang, CEO of chip giant Nvidia, sees spending on AI infrastructure alone reaching as much as $4 trillion in the coming years. It’s a race to see which companies will dominate in this buildout — and which ones will succeed in applying AI to real-world problems.
Some companies already are charging ahead with finding uses for AI and generating huge revenue gains. One of them is SoundHound AI (NASDAQ: SOUN), a voice AI specialist that has seen revenue soar by triple digits. The shares also have taken off, advancing 90% over the past three months.
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After such gains, is it too late to get in on this exciting AI player, or should you buy shares of SoundHound right now? Let’s find out.
Image source: Getty Images.
Natural conversations with AI
So first, let’s consider the SoundHound story. The company has developed a technology that allows AI to engage in natural and complex conversations with you — whether it’s taking your order at a restaurant or helping you make a medical appointment.
Its innovations transform speech directly into meaning — bypassing the traditional step of translating speech into text — which results in a quality experience that can be implemented across industries. More than 190 patents protect the company’s technology, and about 110 more are pending.
All of this has resulted in customers in multiple industries — including automaking, financial services, and healthcare — signing on for its voice-recognition expertise. In the recent quarter, the company listed a few of its newest clients, like the restaurant chain Red Lobster and healthcare company Primary Health Solutions. And it says seven of the top 10 financial institutions worldwide use its platform.
This has fueled enormous growth, with revenue surging 217% in the latest quarter to a record high of more than $42 million. With this momentum, SoundHound AI raised its guidance for full-year revenue to the range of $160 million to $178 million. That’s up from the previous forecast of $157 million to $177 million.
The challenge of profitability
The story sounds very bright so far, but the biggest challenge for the company is reaching profitability. In spite of sales roaring higher, SoundHound still hasn’t made it to that milestone — not shocking considering it has invested in technology and expanding its business.
In the latestearnings call management addressed the subject, saying, “We are moving toward profitability and we see that in the near-term horizon.” The company says it’s controlling costs and optimizing its workforce through AI as part of the effort, and it aims to reach adjusted profitability based on earnings before interest, taxes, depreciation, and amortization (EBITDA) around the end of this year.
Meanwhile, as mentioned, SoundHound stock has skyrocketed over the past few months, so from this level, you may be wondering if there’s any more room for growth. Though the stock has made significant gains, it still is down from its highest level, falling about 25% from a peak reached last December.
A $140 billion market
After the stock’s recent top performance, it may not continue at the same pace in the weeks to come, but there’s reason to be optimistic over the long term. We’re still in the early days of SoundHound’s growth story, with the total addressable market for voice AI at $140 billion.
So the company still has plenty of territory to conquer, and the quality of its voice AI may help it stand out from the crowd. In the near term, progress on profitability goals may serve as a catalyst for the stock. For example, if SoundHound ends the year with adjusted EBITDA profitability, investors may applaud that and scoop up the stock.
Should you buy the stock after its recent big gains? If you’re a cautious investor, you may want to wait to see if the company will reach this initial profitability goal — you may feel more comfortable investing at that point, as it attains a significant milestone. But if you don’t mind a bit of risk, you might choose to get in on SoundHound now and potentially benefit throughout the stages of this growth story.
Most importantly, whether SoundHound AI soars in the weeks to come or not, it is well positioned to succeed in the voice AI market over the long run — and that’s great news for investors who aim to hold on to the shares for a number of years.
Should you invest $1,000 in SoundHound AI right now?
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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