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SoundHound AI (NASDAQ: SOUN) is one of the more popular ways to invest in AI. Because it's a pure play on AI technology, it stands to benefit more from a general technological shift to AI than some of the more established big tech players.

But AI isn't just a trend that'll be over in a year or two. It will play out over multiple years, so investors need to consider what a company may be doing a few years down the road to be successful in this space.

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So, where will SoundHound AI be three years from now? Let's take a look.

SoundHound's speech recognition software is important for AI proliferation

SoundHound AI's product line uses audio inputs for AI models. While most generative AI models rely on text prompts, SoundHound focuses on speech. This massive field could make SoundHound AI an even bigger winner if it becomes the top software for this space.

Using speech for input into AI models is nothing new, as platforms like Siri and Alexa have been doing it for some time, but often with extremely frustrating results for the end user. These devices often make significant errors and don't get used as often as they could be.

SoundHound AI is different. Its platform has fantastic recognition, and in one instance, when it was used to automate drive-thru ordering, it outperformed human counterparts. This is just one application. SoundHound's product has also started to be integrated into other industries, such as automotive, healthcare, insurance, and banking.

As AI agents (another huge investing theme in 2025) become more prevalent, SoundHound's software that allows speech inputs will also. But how will that affect the stock three years from now?

The stock carries a premium price tag

For the short term (2025), management gave guidance that its revenue would be between $155 million and $175 million. Considering that it expects between $82 million and $85 million in revenue for 2024, that indicates that revenue will essentially double. However, SoundHound will need its revenue to increase beyond that strong projection to justify its stock price.

SoundHound AI isn't a profitable company right now, but that's because it's focusing on capturing market share. From a price-to-sales (P/S) perspective, SoundHound's stock trades at lofty levels, although it has come down from its previous highs.

A multiple of 62 times sales is expensive, no matter how you spin the story for the stock. But I think this level can be justified.

The potential for growth with SoundHound is massive, so looking solely at the trailing metrics is a mistake. We know that SoundHound's revenue is projected to double in 2025, but what about beyond that?

One metric SoundHound uses is net bookings, which measure the remaining contract value for deals it has already signed. This isn't a perfect metric, as customers can cancel or push out spending. Still, it's the best one we have for understanding SoundHound's growth trajectory.

Management stated that its backlog stretches out for around six years and currently sits above $1 billion. However, the six-year mark isn't a fair assessment either, as few companies plan out that far. Any revenue in year five or six of that metric is likely just the duration of a base contract, not new business. In all reality, most of the bookings (assuming no huge cancellations) will probably come to fruition over the next three to four years.

That indicates that SoundHound could easily start producing revenue of $300 million annually three years later. If it did that, the stock would be valued at 16.8 times sales -- a typical software company valuation. But for that to happen, it means that SoundHound's stock would have to stay the same price for three years, which isn't an exciting prospect for investors.

However, if SoundHound is growing its revenue rapidly, the valuation would be unlikely to tumble that much, so this isn't a perfect analysis.

So, where will SoundHound AI be in three years? It's hard to say. I could easily see the stock doubling from here if its revenue growth continues to double at a year-over-year pace. However, if this growth starts to slow after it has secured a large portion of its market opportunity, the stock may stay flat.

There's increased risk with SoundHound AI stock, so anyone interested in the stock should keep their position sizing small. That way, it won't have a massive effect on a portfolio if it fails. If it succeeds, SoundHound AI could still make investors a lot of money, but I'd rather invest in more surefire AI stock picks.

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Keithen Drury has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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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