We recently compiled a list of the 11 Penny Stocks That Will Make You A Millionaire. In this article, we are going to take a look at where SoundHound AI Inc. (NASDAQ:SOUN) stands against the other penny stocks.
Why Should You Invest in Penny Stocks?
Penny stocks are often overlooked by most investors. These are the smallest of the small companies operating in the market, and so they typically lose out on being covered in detail by financial reporters and analysts. However, because of this conundrum, many penny stocks end up becoming excellent under-the-radar investments for those investors who don’t mind a bit of risk. This is especially the case for penny stocks operating in the artificial intelligence space today. This isn’t to say that penny stocks offer a sure-shot way of making big profits at all times, though. Since these stocks are of companies that are incredibly small relative to the usual players we hear about in the market news, they are also incredibly risky to invest in – as such, investing in penny stocks is a move that only investors with a tolerance for high-risk, high-reward strategies should make.
In the current market landscape, there may be more room to consider investing in smaller companies. This is because of the potential September rate cut from the Fed. Financial professionals are considering this potential cut to be a catalyst for the growth of smaller companies in the market, which have been largely left ignored over the past two years since the Fed’s policy has been so tight. So a rate cut in September may actually result in an overall growth cycle emerging for smaller players in the market.
Read Also: 7 Most Popular AI Penny Stocks Under $5 and 10 Best Technology Penny Stocks to Invest In Right Now.
How’s The Market Looking For Smaller Stocks Today?
On August 21, Tom Lee, co-founder of Fundstrat Global Advisors, joined CNBC’s “Closing Bell Overtime” to discuss this very development. He noted that as the Fed is starting to normalize its policy and as merger activity in the US is beginning to accelerate, smaller companies are becoming increasingly more poised to benefit. Lee also added that there’s a misconception in the market that smaller companies are growing, or at least have the tendency to, grow slower than bigger companies. In fact, he noted that the small cap index has a median earnings growth that is almost 700 basis points faster than the broader market index, while top-line growth is almost 400 basis points faster. Lee also said the following:
“For small caps to rise 40% means that the P/E, the median Russell 2000 stock goes from 10x to 14x. So, it’s not asking the market to provide some magic and a huge re-evaluation… [With small-caps] you’re getting better growth, lower valuation, and I think the catalyst is now that the market is convinced that the Fed is embarking on a rate cutting cycle.”
According to Lee, money that’s been on the sidelines over the past few years because of the Fed’s rate policy could now potentially funnel into smaller companies because they offer a good risk-reward balance to investors now. Because of these developments, we’ve compiled a list of some of the smallest stocks trading on the market today by going through five months’ worth of articles on Stock Gumshoe, a financial analysis website that offers unique insights into what some call “secret stocks,” which have been going largely ignored by most investors.
Our Methodology
We read Stock Gumshoe articles from April to August of 2024 and then selected the penny stocks that have promising futures ahead of them. The stocks are ranked in ascending order of the number of hedge funds holding stakes in them as of the end of the second quarter of 2024, according to Insider Monkey’s hedge fund data.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A software engineer focused on a computer screen, writing code to create a conversational assistant.
SoundHound AI Inc. (NASDAQ:SOUN)
Number of Hedge Fund Holders: 15
SoundHound AI Inc. (NASDAQ:SOUN) is an application software company based in Santa Clara, California. It develops independent voice AI solutions that enable businesses across the automotive, TV, and Internet of Things industries to deliver high-quality conversational experiences to their customers.
In the Live Action War Room, Ross Givens gave a teaser about an “AI wonder stock” that has immense profit potential built-in. Stock Gumshoe thinks that the teaser is most likely about SoundHound AI Inc. (NASDAQ:SOUN). Here are some of Givens’ comments from the newsletter:
“Founded in 2005 by a Canadian computer scientist… It’s moving fast… by leveraging 98 registered patents for cutting-edge voice and sound recognition technology… It’s already lined up a slew of major partnerships with Hyundai, Mercedes Benz, Honda, Pandora, Netflix, and many others. And recently, I noticed some suspicious buying activity… Causing the price to skyrocket by 260% in just 19 days!”
With the AI boom and SoundHound AI Inc.’s (NASDAQ:SOUN) own moves in drawing up new partnerships, investors have become increasingly interested in this stock. However, it must be noted that the company is still very much in a growth phase, so it may be some time before any investor will see magnified returns on their investment in SoundHound AI Inc. (NASDAQ:SOUN) stock.
Despite this, SoundHound AI Inc. (NASDAQ:SOUN) looks like a penny stock worth picking up right now. In its preliminary 2025 guidance, the company noted that it expects over $100 million in revenue, and it does have a history of 50% revenue growth per year since 2021.
SoundHound AI Inc. (NASDAQ:SOUN) was spotted in the 13F holdings of 15 hedge funds in the second quarter, with a total stake value of $7.5 million.
Overall SOUN ranks 3rd on our list of the penny stocks that will make you a millionaire. While we acknowledge the potential of SOUN as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SOUN 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. This article is originally published at Insider Monkey.