McDonald’s is abandoning AI voice technology in its drive-thru. What could this mean for SoundHound AI’s stock?

MC Donalds (NYSE: MCD) recently announced that it is abandoning its artificial intelligence (AI)-based voice ordering technology, which is based on International Business Machines (NYSE:IBM)Instead, the fast-food giant will try to replace the technology with an alternative solution by the end of the year.

Let’s take a closer look at McDonald’s decision and what impact it could have on SoundHound AI (NASDAQ: SOUN)whose voice-controlled AI technology has recently made great strides in the restaurant space.

A possible McDonald’s replacement

McDonald’s decision to end its partnership with IBM for automated order-taking technology after a two-year trial period comes as a surprise, as the restaurant chain already sold the technology underlying the solution to IBM in fall 2021. McDonald’s originally bought an AI voice startup called Apprente in 2019 and integrated it into a company called McD Tech Labs, which it later sold to IBM. Since that deal, the company has been testing the technology, which it has deployed in more than 100 locations.

The voice ordering technology will be shut down at all locations by July 26 of this year. When the technology was first introduced, McDonald’s said it was about 85% accurate and could accept 80% of orders. However, some of the technology’s bigger mistakes went viral on social media, such as adding ketchup packets and butter to an ice cream sundae and water order.

Mason Smoot, McDonald’s restaurant manager, told franchisees that the company was pleased with the test, but that it “provides an opportunity to explore phone ordering solutions more broadly.”

SoundHound is a possible logical choice to replace IBM, as the company has gained a lot of traction in the restaurant space with its AI-powered drive-thru voice ordering technology and other industry-specific applications, including its Smart Ordering platform, which takes orders and answers questions on incoming phone calls, and its Employee Assist solution, which acts as a copilot through an employee’s headset and helps answer any questions they may have, such as how to clean the ice machine.

SoundHound has signed contracts with a number of major fast-food restaurant chains, including White Castle, Jersey Mike’s, Five Guys, Noodles & CompanyAnd Chipotle Mexican Grilltogether with top restaurant fintech companies like toast, OloAnd squareTherefore, the company is certainly a serious contender to replace IBM as McDonald’s new technology partner in the area of ​​voice-controlled AI ordering technology.

However, SoundHound is not the only candidate. Wendy’s used Alphabet Google Cloud will power its Fresh AI platform, which it is testing in some of its drive-ins. Meanwhile, QSRs like Del Taco, owned by Jack-in-the-boxRally’s, Checker’s and CKE have used solutions from companies such as Presto Automation, Hi Auto tech, OpenCity and Valyant AI.

The story goes on

In fact, Alphabet could be the favorite for the deal, as McDonald’s and Google Cloud reached an agreement last December to use generative AI solutions in their restaurants worldwide. However, even with the Wendy’s deal, voice AI is still not Google’s core competency, and if SoundHound has the better solution, it could still win the McDonald’s deal.

Time to buy SoundHound shares?

Given McDonald’s recent deal with Google Cloud, SoundHound is probably not considered a favorite, but if it does pull off, it would help establish the company as a leader in voice AI, and the stock would certainly soar on the news. So the fact that McDonald’s is not immediately signing a new deal and is looking for alternatives is good news, and SoundHound will likely get the chance to pitch its technology to the fast-food giant.

With a price-to-sales ratio of over 20, SoundHound stock isn’t cheap. However, the company has grown its revenue quickly and built up a large backlog. In the meantime, an outsized catalyst like McDonald’s could be on the way.

Opportunities like McDonald’s and the progress the company is making in other industries and equipment outside of its core automotive and hospitality sectors can help the stock move higher from here. While SoundHound has a lot of potential, it remains a speculative investment given its valuation and the fact that it is still in its early growth stages. Therefore, any investment in this growth technology stock should be appropriately sized given the risk.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Geoffrey Seiler holds positions in Alphabet, Block, and Toast. The Motley Fool holds positions in and recommends Alphabet, Block, Chipotle Mexican Grill, Olo, and Toast. The Motley Fool recommends International Business Machines. The Motley Fool has a disclosure policy.

McDonald’s is abandoning AI voice technology in its drive-thru. What could this mean for SoundHound AI’s stock? was originally published by The Motley Fool