SoundHound AI (NASDAQ:SOUN) shares have climbed 240% in 2024, attracting investors seeking high-growth AI stocks. With its AI-driven, voice-enabled products and services, SoundHound has positioned itself as a strong player in the burgeoning AI market.
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With its Q3 report coming up on Tuesday, November 12, there is a fair amount of excitement that SOUN’s rapid rise could continue.
Looking back at Q2 offers insight into SoundHound’s financial landscape. During the quarter, SOUN reported a customer commitment backlog of $723 million, reflecting almost a 100% increase year-over-year. Additionally, the company’s revenue grew 54% y/y, reaching $13.5 million.
However, as the earnings release nears, top investor Danil Sereda is urging investors to take a more cautious approach.
“The company has high sales and marketing costs and low organic growth, which may make things tricky once the AI craze dies down,” writes the 5-star investor, who’s ranked in the top 3% of TipRanks’ stock experts.
Sereda is worried about SOUN’s acquisition strategy to drive growth. Though the recent purchase of Amelia does fit with the company’s overall strategy of making the “world speakable,” the investor believes it will take some time for its full benefits to be realized.
“The most important thing for growth companies is that organic growth plays the main role,” Sereda opined, adding that “SOUN’s organic expansion is a questionable thing.”
Sereda also voices concerns regarding SOUN’s profitability and operating losses. The investor notes that the company is not expected to become profitable until the end of FY2026, both for EPS and EBIDTA, while “operating losses and cash outflows remain high and make scaling the business challenging going forward.”
Coupled with a valuation that is “too generous” at present, and Sereda is planning on sitting this one out.
“The SOUN stock remains a high-risk investment in the medium term because, despite the business’ expansion, its fundamental issues appear to remain unchanged,” the investor concluded, rating the stock a Hold (i.e. Neutral). (To watch Sereda’s track record, click here)
Wall Street analysts, on the other hand, are firmly on SOUN’s side. With 4 Buy ratings and just 1 Hold, SOUN holds a consensus Strong Buy rating. However, its 12-month average price target of $7.70 represents a relatively modest gain of ~7%, suggesting that analysts see limited upside potential, at least in the near term. (See SOUN stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
