Shares of SoundHound AI (SOUND -0.20%) have outperformed the broader market with stunning gains of nearly 170% over the past year, despite experiencing major volatility. Investors have been buying this small-cap company full steam ahead to capitalize on growing demand for voice-based artificial intelligence (AI) solutions.

But SoundHound stock really took off at the beginning of the year after NVIDIA revealed that he holds a small stake in the company, which has carved out a niche for itself in the speech AI market despite its small size. But should investors continue to hold the stock in anticipation of further gains next year, even though it trades at a high valuation?

Let’s find out.

SoundHound AI’s latest results show that rapid growth is sustainable

SoundHound released its second-quarter results on August 8. Revenue increased 54% year over year to $13.5 million, beating the consensus estimate of $13.1 million. Adjusted loss per share decreased to $0.04 from $0.07 in the year-ago quarter.

The company – whose voice solutions are used by companies in customer service areas such as restaurant ordering and by automakers to develop chatbots and conversational AI assistants – saw strong demand growth again last quarter. Its voice assistant SoundHound Chat AI is now used by six of the automaker’s brands. Stellantis.

A U.S. electric vehicle manufacturer will soon deploy SoundHound’s voice assistant across its entire fleet. The company is also gaining traction with automakers in Latin America and Europe, not to mention various restaurants and food ordering platforms.

All of this explains why the company’s revenue pipeline grew faster than its revenue last quarter. It closed the period with a cumulative subscription and backlog of $723 million, nearly double the year-ago figure. Backlog includes firm customer contracts, while subscription backlog represents the potential revenue it could generate from its current customers.

There is some uncertainty associated with this metric: contract cancellations could occur or the company might not be able to generate the expected revenue from its current customers in the long term. However, the company notes that it makes “reasonable assumptions about acceptance percentages” when calculating the backlog metric.

More importantly, SoundHound’s growth suggests the company can convert its strong pipeline into actual revenue. And the company has decided to further expand its opportunities in the voice AI market with the acquisition of Amelia for $80 million. The deal is expected to strengthen its presence in customer service by helping it reach more customers in the insurance, healthcare, retail and financial services sectors.

Management said Amelia will contribute to its growth starting in the second half of 2024 and now expects to generate over $80 million in revenue this year, up from the previous range of $65 million to $77 million. For 2025, SoundHound expects revenue to exceed $150 million, with Amelia alone contributing $45 million in recurring revenue.

All this suggests that the stock could remain a top investment in the coming year.

Analysts expect more upside potential in the next 12 months

According to six analysts who cover SoundHound, the median price target for the stock over the next 12 months is $7.00, representing a 36% increase from current levels. Five analysts rate the stock as a Buy, while one recommends it as a Hold. The company’s recent results suggest that it could actually meet those expectations in the coming year.

However, investors should note that SoundHound stock is trading at 26 times sales after its rapid rise last year. And the company is not yet profitable, so anyone looking to add this AI stock to their portfolio must expect to pay a high valuation.

The good news is that SoundHound’s impressive growth could help justify that premium, especially given the impending acquisition of Amelia. Growth investors with higher risk appetites can still consider it in anticipation of further upside.