Actions of AI SoundHound (NASDAQ: SOUN) The stock has fallen 21.8% in June 2024, according to data from S&P Global Market Intelligence. The voice-command software specialist had no bad news to share last month, but investors ignored a handful of positive developments that sent the stock price lower.
From a certain perspective, this decision still makes sense. In my eyes, however, the price drop makes SoundHound AI an obvious buy right now.
Nvidia’s Role in Spring Stock Rally
June’s decline is a correction of an earlier rise. Semiconductor designer Nvidia (NASDAQ: NVDA) Nvidia invested $3.7 million in SoundHound AI in 2023, building a 0.6% stake in the small artificial intelligence (AI) company. When the investment was disclosed in February, Nvidia’s modest stance sent SoundHound AI’s stock price soaring. The stock gained 66% overnight and tripled in price over the next two weeks. On March 15, a month after the disclosure, SoundHound AI’s stock price peaked at $10.25, more than four times its pre-disclosure level of $2.26 per share.
Nvidia made several AI-focused investments last year, and SoundHound AI was far from the largest. The company also committed $147 million to Fire arms (NASDAQ: ARM) shares and $76 million to a Pharmaceutical recursion Nvidia’s investment was met with some restraint by Arm, which reacted with some caution, given the company’s market cap of $190 billion. But Recursion Pharma’s surge was more modest and short-lived than SoundHound AI’s, fading completely by the end of March.
At the time, Nvidia had already shared some details about its intentions regarding the investment in SoundHound AI. The two companies are working together on AI-powered voice control systems for the Nvidia Drive autonomous vehicle platform, and this small investment is a natural result of a close operational partnership.
Investor enthusiasm for Nvidia’s investment has been waning for months, and June’s decline only continued that trend.
SoundHound AI’s Recent Achievements
What about the positive developments I mentioned earlier? They weren’t exactly game-changers, but one accelerated SoundHound AI’s ambitions in the restaurant management industry, and the other two demonstrated a sense of financial responsibility.
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In June, the company paid down $100 million in long-term debt, leaving a debt-free balance sheet with $180 million in cash reserves. That repayment was funded by $143 million in new stock sales during the first quarter — SoundHound AI benefited from the stock price rally.
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A small number of preferred stock stubs were converted into Class A common stock. The company no longer needs to pay dividends to its preferred shareholders and the ownership structure is somewhat simpler with only one class of stock.
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Finally, SoundHound AI acquired food ordering specialist Allset Technologies for an undisclosed amount. The deal adds Allset’s 7,000 retail locations to SoundHound AI’s customer list, along with a small team of talented developers. “This collaboration will accelerate our progress toward the next exciting phase of AI-powered ordering convenience,” said Stas Matviyenko, CEO of Allset.
In conclusion, the recent drop in SoundHound AI’s stock is clearly more of a setback than a setback. The company’s strategic vision, backed by a substantial $180 million cash reserve and an impressive $682 million backlog of unfulfilled orders and long-term subscriptions, positions it for significant growth.
With such strong fundamentals and a forward-looking management team, SoundHound AI stands out as a great investment opportunity right now. The lower share price only makes this idea more compelling.
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Anders Bylund holds positions in Nvidia and SoundHound AI. The Motley Fool holds positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
Why SoundHound AI Stock Lost 22% Last Month was originally published by The Motley Fool
