Shares of SoundHound AI (NASDAQ:SOUN) have surged recently as analysts have been continuously raising their price targets.

Cantor Fitzgerald upgraded SoundHound AI from a “neutral” rating to an “overweight” rating and increased their target price for the company from $5 to $7. That was back in August. More recently, H.C. Wainwright analyst Scott Buck raised his price target to $8 from $7 and some price targets go up to $10. SOUN stock currently trades at $6.4 as of writing.

In fact, one analyst has floated the idea of SoundHound reaching a $1 trillion market cap in the coming decades.

Jon Swartz on Techstrong wrote: “…disembodied voices are greeting them [customers] via menu booths and over smartphones. It’s a fledgling market lorded over by SoundHound AI Inc., a publicly traded company backed by NVIDIA Corp. and partnering with Perplexity that some analysts breathlessly predict could top a $1 trillion valuation by 2050.”

The Motley Fool has also called SoundHound AI the “most undervalued AI stock.”

However, it’s wiser to take such long-shot predictions with a hefty grain of salt. Being realistic is better than being overly ambitious.

How Has SoundHound Been Doing So Far?

SoundHound has been posting very impressive growth numbers lately. In Q3 2024, revenue soared 89% year-over-year to $25.1 million. The company also raised its full-year 2024 revenue guidance to $82-85 million and projected 2025 revenue could reach as high as $175 million. This rapid top-line expansion–combined with improving margins and narrowing losses–has analysts feeling increasingly bullish on SoundHound’s prospects.

That said, you should also keep the bottom line here in mind. SoundHound AI posted nearly $22 million in losses in Q3. That’s a net profit margin of about -87%. It has $136 million in cash right now and a lot of that has been raised through dilutive equity offerings. Outstanding shares were at 196 million back in May 2022. That number is at almost 370 million today. To be fair, the trend has flattened. But dilution could restart if cash runs out again. That’s definitely a possibility with the current unprofitability here.

Can SoundHound Reach a $1 Trillion Valuation?

SoundHound’s addressable market opportunity exceeds $140 billion and does provide a long growth runway. Analysts expect enterprise spending on generative AI technologies–which SoundHound specializes in–to explode 15-fold over the next three years to nearly $250 billion.

These top-line figures are nice, but profitability is going to be a major problem. So much so that they’re going to have problems with remaining as a going concern in the coming years, let alone spend enough on customer procurement to rack up hundreds of billions in sales.

Regardless, the extremely bullish forecasts have helped drive SOUN shares significantly higher as investors dream about multi-bagger returns.

However, it’s critical to put this $1 trillion prediction into proper context. Achieving a 13-figure market cap would require absolutely flawless execution and all the stars aligning perfectly for SoundHound over the next 25+ years. For reference, only a handful of companies like Nvidia, Apple, Microsoft, Google, and Saudi Aramco have ever reached the $1 trillion threshold. The odds of SoundHound joining that elite club are incredibly slim.

Competition in the AI space is already fierce. Deep-pocketed tech giants and a slew of other well-funded startups are all aggressively pursuing the same enterprise customers. Sustaining such a rapid growth trajectory will only get more challenging over time.

Approach SoundHound Stock with Cautious Optimism

SoundHound has a lot going for it – cutting-edge voice AI technology protected by over 270 patents, accelerating revenue growth, broadening customer diversification, and a huge addressable market. Analysts are clearly excited about the company’s potential. But if you’re looking at it from a value perspective, the unprofitability here makes it pretty undervalued. It is only investable if you take the long-shot forecasts seriously.

You need to be extremely careful about extrapolating SoundHound’s recent success too far into the future, especially when it comes to pie-in-the-sky trillion-dollar predictions. The company still faces major execution risks and competitive threats that could derail its growth story.

For now, a cautiously optimistic stance is probably appropriate. SoundHound appears to have a bright future ahead, but it’s critical to size positions appropriately given the inherent uncertainties involved with any early-stage growth company. Dreaming of trillion-dollar valuations is fun, but betting the farm on those long-shot hopes actually becoming reality is an extremely risky move.

While I acknowledge the potential of SOUN as an AI play, my conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None.