Got $5,000? 1 Tech Stock to Buy and Hold for the Long Term.

It's tempting to actively trade small tech companies in their early days. The companies' stock prices typically experience wild swings as investors grapple with proper valuations and long-term opportunities.

However, it's often better to designate a small portion of your portfolio to a speculative name and hold the stock for the long haul. For instance, if you bought $5,000 worth of an upstart online bookseller at its initial public offering, you would have over $10 million today.

I'm talking about Amazon, of course. No one knew back then that the company would grow to dominate online retail and be the largest cloud services provider. In fact, there was no such thing as the cloud back then.

There were also dozens of companies that did not pan out, so it's crucial not to put all your eggs in one basket and not designate too much money to speculative names. But when they hit, these stocks supercharge investment gains.

SoundHound AI (NASDAQ: SOUN) is a company with massive potential (and a fair amount of risk) for long-term success. Here's why.

What does SoundHound do?

Conversational interactive voice-recognition technology is coming soon to a drive-thru near year. Companies will also implement this in fast-casual restaurants, quick-stop retail, and vehicles. A growing number of businesses are adding and experimenting with this tech, with many using SoundHound's technology.

Here are the brands that have partnered with the company already:

Image source: SoundHound AI.

The potential for gigantic savings for companies that use AI to automate customer service will compel businesses to implement this technology.

Much like paying at the pump and self-checkout lanes, this automated ordering will be the standard in the near future, I firmly believe. Statista estimates that the speech recognition market will double by the end of the decade, as you can see below.

Statista.

The automotive market is another tremendous opportunity for voice-recognition tech. Many vehicles can now understand limited commands, such as "Call mom" or "Play music." Soon, more-complex requests such as, "What is the highest-rated restaurant within 10 miles that serves hamburgers?" will be possible.

SoundHound believes its total addressable market from all verticles could reach $140 billion, so capturing even a small portion of this would make the company successful.

Is SoundHound stock a buy now?

The company reported an 89% year-over-year rise in revenue to $25 million in the third quarter. Best of all, the revenue concentration from its largest customer dropped from 72% to just 12%. A high concentration is dangerous because losing that one customer would be devastating, so this gigantic reduction is terrific news.

Revenue for 2024 is forecast to reach at least $82 million, followed by $155 million to $175 million in 2025. The midpoint of the 2025 guidance would be a 100% increase. The stock trades at 36 times sales right now, which is quite expensive. But this drops to 18 times sales at next year's guidance midpoint and will continue to fall substantially if the rapid growth continues.

SoundHound is on solid financial footing, with $181 million in current assets against $70 million in current liabilities (those payable within one year). This will allow the company to invest in growth and fund operations for now. SoundHound also has long-term liabilities, such as $40 million in long-term debt due in June of 2026 and a $74 million liability related to an acquisition contingent on specific performance metrics.

However, the company is not profitable or reporting positive cash flow from operations yet, so management must soon translate the stellar revenue growth into positive cash flow. Because of this, SoundHound stock isn't for everyone. (Take The Motley Fool's risk tolerance quiz here.) It's riskier than established profitable companies but has gigantic potential upside. That's why it's worth a modest, long-term position.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $359,445!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $45,374!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $484,143!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of December 2, 2024

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.