Investors are increasingly paying closer attention to one of today’s biggest winners – SoundHound AI (NASDAQ:SOUN). Shares of SOUN stock surged over 15% higher in early afternoon trading, previously seeing gains of more than 20% in today’s session. Importantly, this move comes on interesting comments from the company’s management team, in which forward demand is expected to be “through the roof.”
Makes sense. Most artificial intelligence (AI) related companies are seeing similar trends play out. And in the case of chip companies like Nvidia (NASDAQ:NVDA), this demand surge has been very profitable, leading to fundamentally driven rallies in key names.
Speaking of Nvidia, a disclosure last month indicated the high-performance chipmaker had taken a stake in SoundHound, further validating this company in the minds of AI investors.
With this backdrop, it’s easy to see why SOUN stock is making such a big move. Let’s dive more into this move and try to put things into context.
Why Is SOUN Stock Surging Today?
It’s not just today’s 15%-plus move that’s driving so much attention around this relatively small AI stock (currently, SoundHound’s market capitalization sits just above $1.8 billion). It’s the company’s total addressable market, and its goal of dominating the voice AI solutions market, which could be as large as $160 billion.
Thus, if demand is as solid as the company claims it is, and SoundHound is able to capture market share in the manner the market believes it can, this valuation is more than justified. The fact that SOUN stock has more than tripled over the past month alone certainly seems to indicate investors are loading one side of the boat with this stock.
Does this make SoundHound more risky at these higher levels? Sure. Value-conscious investors may balk at the company’s new price-sales ratio of 25 times (a ratio that’s doubled since the past quarter).
But if Nvidia-like growth is possible with SoundHound AI, perhaps this rally is under-selling the company’s potential. Right now, that’s the position market participants are taking, and it’s hard to take the other side of this bet right now, given the stock’s incredible momentum.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
