We recently compiled a list of 11 Penny Stocks That Will Make You a Millionaire. In this article, we will examine how SoundHound AI Inc. (NASDAQ:SOUN) stands relative to other penny stocks.
Why Should You Invest in Penny Stocks?
Penny stocks are often overlooked by most investors. They are the smallest of the small companies operating in the market, and as such, they are not typically covered in detail by financial journalists and analysts. However, because of this dilemma, many penny stocks end up becoming great, low-key investments for investors who don’t mind a little risk. This is especially true of penny stocks operating in the artificial intelligence space today. That’s not to say that penny stocks offer a surefire way to make big profits all the time, though. Since these stocks are owned by incredibly small companies compared 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 choice that only investors with a tolerance for high-risk, high-reward strategies should make.
In the current market environment, it is possible that investing in small businesses will be more attractive. This is due to the potential Fed rate cut in September. Financial professionals view this potential cut as a catalyst for growth in the market’s small businesses, which have been largely ignored over the past two years due to the Fed’s tightening policy. Thus, a rate cut in September could actually ignite an overall growth cycle for smaller market participants.
Read also: The 7 Most Popular AI Penny Stocks Under $5 And The 10 Best Tech Penny Stocks to Invest In Right Now.
How is the market looking for smaller stocks today?
On August 21, Tom Lee, co-founder of Fundstrat Global Advisors, appeared on CNBC’s “Closing Bell Overtime” to discuss this development. He noted that as the Fed begins to normalize policy and merger activity in the U.S. accelerates, smaller companies are increasingly likely to benefit. Lee also added that there is a misconception in the market that smaller companies grow, or at least tend to grow, more slowly than larger companies. In fact, he noted that the small-cap index has median earnings growth that is nearly 700 basis points faster than the broad market index, while revenue growth is nearly 400 basis points faster. Lee also said:
“If small caps go up 40%, that means the P/E, the median of the Russell 2000 stocks, goes from 10x to 14x. So it’s not about asking the market to do magic and do a massive repricing… (With small caps), you get better growth, lower valuation, and I think the catalyst now is that the market is convinced that the Fed is going into a rate-cutting cycle.”
According to Lee, the money that has been set aside in recent years due to the Fed’s rate policy could now potentially be shifted to smaller companies, as they now offer a good risk-reward ratio for investors. With these developments in mind, we’ve compiled a list of some of the smallest stocks trading on the market today by combing through five months of articles on Stock Gumshoe, a financial analysis website that offers unique insights into what some call “secret stocks” that have been largely ignored by most investors.
Our methodology
We read Stock Gumshoe articles from April to August 2024 and then selected penny stocks that have a bright future 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 Q2 2024, according to hedge fund data from Insider Monkey.
Why do we care about stocks that hedge funds are heavily invested in? The reason is simple: Our research has shown that we can outperform the market by mimicking the best stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter and has returned 275% since May 2014, outperforming 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:HER)
Number of hedge fund holders: 15
SoundHound AI Inc. (NASDAQ: SOUN) is a Santa Clara, California-based application software company that develops independent voice AI solutions that enable automotive, television and Internet of Things companies to deliver high-quality conversational experiences to their customers.
In the Live Action War Room, Ross Givens previewed an “AI miracle stock” that has immense profit potential built in. Stock Gumshoe believes the teaser is most likely for SoundHound AI Inc. (NASDAQ:SOUN). Here are some of Givens’ comments from the newsletter:
“Founded in 2005 by a Canadian computer scientist… It is evolving rapidly… with 98 patents filed for cutting-edge speech and sound recognition technology… It has already secured a series 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 rise of artificial intelligence and SoundHound AI Inc. (NASDAQ:SOUN)’s moves to build new partnerships, investors are increasingly interested in this stock. It is worth noting, however, that the company is still in the growth phase, so it may take some time before an investor sees increased returns on their investment in SoundHound AI Inc. (NASDAQ:SOUN) stock.
Despite this, SoundHound AI Inc. (NASDAQ:SOUN) appears to be a cheap stock worth buying right now. In its preliminary guidance for 2025, the company said it expects to generate revenue of over $100 million and has seen revenue growth of 50% per year since 2021.
SoundHound AI Inc. (NASDAQ:SOUN) was spotted in 13 holdings by 15 hedge funds in the second quarter, with a total holding value of $7.5 million.
SOUN global ranks 3rd on our list of penny stocks that will make you a millionaire. While we recognize SOUN’s potential as an investment, our conviction lies in the belief that AI stocks have great promise to deliver high returns and do so in a shorter time frame. If you’re looking for an AI stock that has more promise than SOUN but is trading at less than 5x earnings, check out our report on the the cheapest AI stock.
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Disclosure: None. This article was originally published on Insider Monkey.