Piper Sandler initiates on SoundHound AI with ‘overweight,’ shares surge

Shares of SoundHound AI, which offers voice and conversational AI solutions, jumped 16% yesterday following an initiation report from Piper Sandler. It underscored the opportunities for SoundHound AI to capitalize further on the expanding AI market.

Yesterday, May 27, SoundHound AI surged 16% to $11.10 per share after investment bank Piper Sandler initiated coverage with an “overweight” rating at a target price of $12.00 per share — 21% above the stock’s closing price on the prior trading day, May 23.

“SoundHound, which provides advanced AI voice assistants, is a great way to play the AI trade, and the company has just begun to tap into its potential,” wrote Piper Sandler analyst James Fish.

Fish estimates that by 2027, SoundHound AI’s total addressable market could reach $30 billion. He expects SoundHound AI to significantly expand its subscription-based model, which he figures could eventually account for about 90% of the company’s total revenue. Just two years ago, subscription revenue made up less than 4% of total revenue, notes the Motley Fool.

Investors reacted quickly to the Piper Sandler initiation. More than 170,000 call options on SoundHound AI were bought, about 58% above the typical daily volume, according to MarketBeat.

The stock may also have been buoyed by anticipation of Nvidia’s quarterly earnings, which investors view as a bellwether for the entire AI sector. Nvidia had previously been a SoundHound AI investor, holding 1.73 million shares, but by the end of last year, it had sold its entire stake.

SoundHound AI shares are still down more than 40% year to date. According to MarketWatch, the average target price from nine coverage analysts is $11.83 per share. Six of them rate the stock a “buy” versus three “holds.”

California-based SoundHound AI initially focused on voice assistants for the automotive sector and has partnerships with Hyundai, Mercedes-Benz, and Stellantis. In addition to Nvidia, strategic investors have included Hyundai, Samsung, HTC, and European telecom operator Orange SA.

Amid rising expectations of a slowdown in auto production, SoundHound AI expanded into new areas, and it now offers voice AI solutions for the restaurant, hospitality, and healthcare sectors, IoT devices, and call centers.

In its most recent, first-quarter earnings, SoundHound AI announced revenue of $29.1 million, a 150% year-over-year increase. Still, the company continues to report operating losses, driven by heavy spending on R&D as it competes with major tech players like Google, Amazon, Apple, and Microsoft in the voice assistant space.