Artificial intelligence (AI) continues to excite investors while amplifying every market in which it overlaps. A plethora of AI-powered innovations have quickly appeared, as most companies in most sectors still ruminate about how best to capitalize on AI and its potential. One company that caught my eye in the sprawling AI space is SoundHound AI (SOUN).
Invest with Confidence:
- Follow TipRanks' Top Wall Street Analysts to uncover their success rate and average return.
- Join thousands of data-driven investors – Build your Smart Portfolio for personalized insights.
This plucky voice AI developer has rapidly advanced its service offering and share price valuation in 2024, registering an eye-watering 742% gain last year. However, whether SOUN proves to be a visionary disruptor or just an overhyped stock on the back of AI enthusiasm remains to be seen.
With the risk-reward balance tipping into dangerous territory for me, I’m taking a cautious Hold stance on SoundHound.
SoundHound’s Attractive Market Proposition
There’s a lot to like about SoundHound’s story, but it remains an uncertain time for the billion-dollar-valued AI developer. Although AI is a relatively new concept that has not yet been widely adopted, the company started working on such systems in 2005. Unlike many companies using curated voices as their digital assistant, such as Amazon’s Alexa, Google’s Assistant, or Apple’s Siri, SOUN’s Houndify platform enables independent, fully customizable solutions. An increasing number of companies are now looking for customizable voices for training and marketing materials, so having the ability to do so without relying on tech giants is commercially appealing.
Moreover, Houndify’s speech-to-meaning and “deep meaning understanding” technology allows large multinationals to offer highly accurate voice interactions for millions of its customers across various sectors, thereby unlocking significant savings and efficiencies. So far, SOUN’s technology has found a home in the automotive sector, where brands such as Hyundai and Kia have integrated SoundHound’s vocal features into their vehicles. There’s also been significant adoption by restaurants, powering ordering systems in over 10,000 locations.
As things stand, SoundHound is being utilized by over a dozen restaurant brands across the U.S.
The ability to handle complex and dynamic customer interactions in real-time has positioned SOUN as a leader in the space, delivering on its goal of being the world’s most groundbreaking and avant-garde player in voice automation. However, I suspect the firm is going through a transitional period at present, with the future of licensing, subscriptions, and enthusiasm for AI in general up for debate (and change).
Enormous Growth, But at a Cost
SoundHound’s financials are reasonably impressive at first glance, but there remain a few red flags I’m concerned about. Focusing on SOUN’s most recent quarterly earnings report published in November 2024, the company earned $25 million in quarterly revenue, up 89% year-over-year.
With over 200 brands on its customer list and very few market competitors thus far, there is a strong likelihood that SOUN’s performance will continue on trend. Also, its success is likely to attract other players into the market, buoyed by the prospect of a new fertile market with plenty of spare capacity to expand into. SOUN expects an impressive forward revenue growth rate of 74%, well above the broader sector average.
However, looking below the surface reveals a few problems that warrant careful consideration as an investor. The company is far from sustainable, with a net loss of $37.3 million in Q4 2024 and a negative income margin of 199%. Margins have fallen from 73% to 49% in 2024, suggesting that meager revenue growth is being propped up by expenses. Without this being addressed, the prospect of steady profits over the medium-long term is difficult to justify.
Moreover, SOUN’s delicately poised market position is further complicated by its acquisition of Amelia, an AI-based customer service platform, in August last year. While this deal helps expand SOUN’s offering, the purchase also adds significant operational costs in the near term. SOUN may want to capitalize on its giddy growth with value-accretive acquisitions. However, such endeavors are risky and could mean lost value for shareholders.
SOUN Appreciation Challenged by a Crowded Landscape
SOUN operates in a field dominated by some of the world’s largest technology companies, with enormous resources and market influence. Large peers also directly influence various hardware and software platforms, potentially making it difficult for third parties to fit into integrated systems. Of course, there is still plenty of demand from businesses for customizable voices for enterprise applications, and there is strong demand from established sectors for proprietary AI integrations rather than having to partner with third parties.
How the AI sector develops over the coming years remains uncertain as dozens of aspiring technology firms, much like alluvial gold miners moving to the Klondike, invest billions into AI development over the next decade. If the enterprise voice niche proves viable and lucrative, it’s reasonable to assume that rival systems from competitive peers will put further pressure on SoundHound’s investment case. One of the keys to SOUN’s success is its ability to keep its technology licensed and trademarked to protect its tender market share.
Sentiment Volatility Poses Danger to SoundHound Investment Case
With the share price up 111% over the past 3 years and 742% over the past 12 months, early SoundHound investors have clearly had a fantastic run. However, SOUN’s share price declined at the start of 2025 following a disappointing showing at CES, the largest and most significant event in the Tech industry, in which the company faced heavy criticism for its new in-vehicle AI system.
Recent price action demonstrates that SOUN may not be suitable for investors with a weak stomach or low-risk appetite. As with other embryonic sectors like EVs and biotech, we’ll likely see raised volatility and plenty of companies missing the mark as hundreds jostle to become the leading frontrunner in a new business niche.
Is SoundHound Stock a Good Buy?
Turning to Wall Street, SOUN received a Moderate Buy consensus rating based on two Buy, two Hold, and zero Sell ratings in the past three months. The average analyst SOUN price target of $15.25 per share implies a 3.72% potential downside from current levels.
While growth stocks with high valuations are hardly unusual, SOUN’s price-to-sales ratio of 87, combined with an EV/sales of 23, is beyond my personal risk profile and is why I couldn’t consider adding this AI developer to my portfolio. An extended number of tangible and intangible risks could potentially materialize to bring SOUN’s share price back to Earth while sending early investors with a fistful of profits to the exit door.
From Market Darling to Hold-Worthy Gamble
Investments in companies like SoundHound tend to be driven by each investor’s unique risk appetite and investment horizon. And so too with SoundHound. The stock has been a market darling for several years as it impressed early investors by plucking low-hanging fruit and driving sales/revenue growth in its early stages. However, in early 2025, the stock has become a market gamble.
From my perspective, SOUN is making innovative solutions for businesses desperate to leverage AI for efficiency. Still, it must overcome several challenges to sustain its momentum thus far.
If SoundHound can continue building on existing partnerships, strengthen its balance sheet, and restore its impressive margins, investors may see a steady move toward profitability. However, following such a massive rally over the past 12 months, it is natural to expect some profit-taking and a correction. Moreover, market participants realize that AI hype is gradually fading and is being replaced by sober outlooks, suggesting that many AI innovations are not ready for commercialization.
With all that taken into account, I’m uncomfortable with establishing a long position in SOUN and would strongly advise investors to carefully examine SoundHound’s fundamentals before getting involved at current price levels.
