SoundHound AI (SOUND -3.29%) Shares were strong last week after the company announced robust second-quarter revenue growth and a major deal.

A transformative acquisition

While SoundHound reported strong second-quarter results, the news was overshadowed by the acquisition the company announced prior to releasing its results. The company will acquire artificial intelligence (AI) software company Amelia for $80 million in cash and equity, as well as assume Amelia’s debt and future earn-outs when certain revenue milestones are met.

Amelia is known for its conversational and generative AI platform that helps with customer service, employee onboarding, and back-office tasks. The acquisition will help SoundHound expand into other industries such as financial institutions, insurance, retail, and healthcare. The company said the deal will also open up many new cross-selling and upselling opportunities, as well as new avenues for monetization.

The combined company is expected to generate more than $150 million in revenue next year, with Amelia contributing more than $45 million. After the deal, the company will have $160 million in cash and $39 million in debt on its balance sheet.

On the earnings side, SoundHound’s revenues rose 54% year over year to $13.5 million in the second quarter. However, the company continues to be loss-making. It reported an adjusted loss of $0.04 per share, an improvement from the year-ago loss of $0.07 per share, while the loss on adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) widened to $13.8 million from $10.1 million. Cumulative backlog of subscriptions and bookings doubled year over year to $723 million. This is revenue that is outsourced and should be generated in the coming years.

The company continued to make progress in its two main divisions, automobiles and restaurants. In the automotive division, it announced that five new Stellantis brands have started production with their AI voice assistant. In total, it is now included in six of Stellantis’ 14 brands. SoundHound also said that an unnamed U.S. electric vehicle (EV) maker will soon begin production of its AI voice assistant in all of its vehicles. Additionally, the company has expanded a relationship with a European EV maker.

In the restaurant space, the company signed a deal with one of the world’s largest pizza chains for its phone ordering service, while two coffee chains added its employee assistance solution. Meanwhile, sports eatery Beef ‘O’ Brady’s, which has around 140 outlets in 21 states, rolled out SoundHound’s AI voice ordering system in its restaurants.

The company now expects full-year 2024 revenue to exceed $80 million, rising to over $150 million next year.

Image source: Getty Images.

Is it too late to buy the stock?

SoundHound shares have had a wild ride this year, initially rising on news that NVIDIA had acquired a stake in the company before coming back down to earth. The stock quadrupled and then lost more than half its value in less than three months. Yet it is still up more than 140% year to date.

The company has done well in its core automotive business and has a large order backlog, while continuing to establish itself in the hospitality sector. With the acquisition of Amelia, it now wants to bring its technology to other industries where its AI voice technology can be used for both customer service and employee assistance solutions, something it has had good experience with in the hospitality sector.

From a valuation perspective, SoundHound trades at a price-to-sales (P/S) multiple of nearly 16 times analyst estimates for 2025, not including Amelia’s contribution. Based on management’s 2025 forecast for the combined company, that multiple is nearly 12 times.

Data from YCharts.

Notably, SoundHound is acquiring Amelia for less than twice next year’s revenue, which puts the value of SoundHound’s stock into perspective.

SoundHound continues to show great promise, but remains highly speculative given its valuation and short track record.