SoundHound AI today
(As of 12/13/2024 ET)
- 52 week range
- US$1.62
▼
$17.29
- Target price
- $7.64
SoundHound AI NASDAQ:SOUN weathered the crisis, with its shares up 80% in the last month and nearly 200% this quarter. The explosive growth underscores the speculative heat in the market, with capital pouring into small- and mid-cap stocks focused on hot topics such as artificial intelligence, nuclear energy and quantum computing. The big question now is whether SoundHound can maintain its gains after breaking above its previous 52-week high near $10, or whether the stock is destined for a pullback as 2025 approaches.
SoundHound: Leader in Sound and Audio Technology
SoundHound AI is a pioneer in voice-enabled artificial intelligence (AI) solutions, developing cutting-edge technologies for devices and applications. The company’s flagship product, the SoundHound app, founded in 2005, has been downloaded more than 315 million times worldwide. In addition, SoundHound has partnered with several renowned automakers to integrate its voice AI technology into vehicles.
Operating in the highly competitive artificial intelligence sector, which is expected to grow exponentially over the next decade, SoundHound faces stiff competition from giants like Google and Microsoft, as well as new startups. Regulatory and political pressures surrounding artificial intelligence technology around the world further complicate matters.
As the business grows, so do the losses.
SoundHound reported third-quarter 2024 earnings on November 12, reporting EPS of -$0.06, beating the consensus estimate of -$0.07. Revenue for the quarter grew 88.7% year over year to $25.1 million, beating analysts’ expectations of $23.02 million. The company’s software-as-a-service (SaaS) business model generates stable, recurring revenue and attracts high-profile clients including Grupo Aeroméxico, BNP Paribas and Aveanna Healthcare Holdings.
SoundHound AI, Inc. Price Chart (SOUN) on Friday, December 13, 2024
SoundHound is also expanding through strategic acquisitions, such as the $80 million purchase of Amelia AI, which adds a robust AI agent for back-end business tasks. Amelia AI is expected to generate $45 million in revenue, in line with SoundHound’s 2025 forecast of $150 million.
Despite these growth figures, the company’s financial condition is cause for concern. Operating losses rose 132% year-over-year in the third quarter to $33.7 million, and the company has no clear path to profitability. With losses mounting, SoundHound will likely be burning cash for the foreseeable future, raising questions about its sustainability.
Growing skepticism amid insider selling
Investor skepticism is growing, as evidenced by the company’s elevated short interest rate of 25.22% as of November 30th. This high short interest signals widespread doubt about SoundHound’s valuation and its ability to achieve profitability or meet capital needs.
Adding to the bearish sentiment is significant insider selling. Over the last 12 months, insiders have sold $32.59 million worth of shares, with no insider purchases during that period. Recent insider activity is even more concerning, with $25 million in shares sold in the fourth quarter alone, including nearly $12 million by the CEO in December.
Analyst Sentiment and Valuation Concerns
Analysts maintain a Moderate Buy consensus rating on SOUN shares, but the $7.64 average price target suggests a potential downside of nearly 44% from current levels. While the company continues to grow its customer base and revenue, these red flags, insider selling, lack of profitability and growing short interest, call into question its ability to maintain its current valuation.
Conclusion: high risk game
SoundHound AI has certainly caught the market’s attention for its growth potential and alignment with the AI megatrend. However, mounting losses, significant insider selling and bearish sentiment make it a risky bet for 2025. Investors with a high risk tolerance may find opportunity in the speculative appeal of the stock, but caution may be warranted given the many challenges ahead.
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