SoundHound AI (NASDAQ:SOUN) stock has had a phenomenal run this year, skyrocketing a remarkable 698% in 2024 and 82% this month alone. The surge comes as investor excitement for AI-driven innovations reaches a fever pitch, with the company’s voice-enabled technology taking center stage in the buzz.
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One driver of the recent momentum was Friday’s announcement that the company’s Amelia platform was recognized as a leading force in conversational AI for enterprise healthcare.
Moreover, SoundHound announced earlier this month a key deal with Torchy’s Tacos, where its AI technology will handle customer calls, process orders, and address inquiries about menu items. The usage of these simulated customer service representatives has the potential to translate into big bucks, as missed calls (and missed orders) will become a relic of the past.
However, it’s not all smooth sailing. SoundHound continues to grapple with high operating costs and remains unprofitable.
These concerns are echoed by investor Grassroots Trading, who remains unconvinced about SOUN’s long-term potential.
“Despite strong revenue growth, SoundHound faces high operating losses, heavy equity financing, and resource constraints, raising concerns about its valuation,” the investor assesses.
Nonetheless, the investor acknowledges the global expansion of voice recognition technology, providing ample opportunities for SoundHound to grow its market presence. Over the past five years, the company’s revenue has skyrocketed nearly ninefold, from $7.7 million in 2019 to $67.3 million in the last 12 months. However, Grassroots is quick to highlight the corresponding rise in operating expenses, with SG&A costs climbing from $20 million to $67.7 million and R&D expenses increasing from $47.8 million to $62.9 million during the same period.
“The necessary drive to scale up and stay ahead tech-wise has definitely taken a toll on profitability,” Grassroots opined.
These rising costs make SoundHound’s premium valuation difficult to justify. The company’s price-to-sales (P/S) ratio stands at an eye-popping 1,700% above the sector average.
“I can’t see how the fundamentals justify the steep valuation,” concludes the investor, who rates SOUN shares a Hold (i.e. Neutral). (To watch Grassroots Trading’s track record, click here)
Turning to Wall Street, SOUN has received 5 recent analyst reviews, comprising 3 Buys and 2 Holds, resulting in a Moderate Buy consensus rating. However, the stock’s rapid ascent has surpassed even the most bullish projections, with SOUN’s 12-month average price target of $8.10 now implying potential losses of ~52%. (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.
