SoundHound AI today
(As of 12/13/2024 ET)
- 52 week range
- $1.62
▼
$17.29
- Price target
- $7.64
SoundHound AI NASDAQ:SOUN It’s been on a tear, with its stock up 80% in the past month and nearly 200% this quarter. This explosive rally underscores the speculative fervor in the market, with capital flowing into small- and mid-cap stocks in hot topics such as artificial intelligence, nuclear power and quantum computing. The big question now is whether SoundHound can sustain its gains after breaking above its previous 52-week high near $10 or whether the stock is headed for a pullback heading into 2025.
SoundHound: A leader in sound and audio technology
SoundHound AI is a leader in voice-enabled artificial intelligence (AI) solutions, developing cutting-edge technology for devices and applications. SoundHound, the company’s flagship product, was founded in 2005 and has more than 315 million downloads worldwide. Additionally, SoundHound has partnered with several prominent automakers to integrate voice AI technology into vehicles.
SoundHound operates within the highly competitive AI sector, which is expected to grow significantly in the next decade, and faces intense competition from giants like Google, Microsoft, and emerging startups. The regulatory and political pressures surrounding AI technology around the world further complicate the landscape.
As business grows, so do losses
SoundHound reported its third-quarter 2024 earnings on November 12, reporting EPS of -$0.06, which beat the consensus estimate of -$0.07. Revenue for the quarter rose 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 has attracted high-profile clients, including Grupo Aeroméxico, BNP Paribas and Aveanna Healthcare Holdings.
SoundHound AI, Inc. pricing chart (SOUN) for Saturday, December 14, 2024
SoundHound is also expanding through strategic acquisitions, such as its $80 million purchase of Amelia AI, which adds a powerful AI agent for back-end business tasks. Amelia AI is expected to generate $45 million in revenue, contributing to SoundHound’s 2025 forecast of $150 million.
Despite these growth metrics, the company’s financial health is worrying. Operating losses rose 132% year-over-year in the third quarter to $33.7 million, and the company shows no clear path to profitability. With losses mounting, SoundHound will likely burn cash for the foreseeable future, raising questions about its sustainability.
Doubts grow amid insider selling
Investor skepticism is growing, as evidenced by the company’s short interest rising 25.22% as of November 30. This high short interest indicates widespread doubts about SoundHound’s valuation and its ability to achieve profitability or meet capital requirements.
Adding to the bearish sentiment is heavy insider selling. Over the last 12 months, insiders sold US$32.59m worth of shares, with no insider buying during this period. The recent insider activity is even more troubling: During the fourth quarter alone, $25 million in stock was sold, including nearly $12 million by the CEO in December.
Analyst sentiment and valuation concerns
Analysts maintain a consensus of a Moderate Buy rating on SOUN, but the average price target of $7.64 suggests a potential downside of ~44% from current levels. While the company continues to grow its customer base and revenue, these red flags, insider selling, lack of profitability, and high short interest, cast doubt on its ability to maintain its current valuation.
Conclusion: High stakes game
SoundHound AI has undoubtedly captured the imagination of the market with its growth potential and alignment with the mega trend of AI. However, its mounting losses, heavy insider selling, and bearish sentiment make it a risky bet for 2025. Investors with a high risk tolerance may find opportunities in the stock’s speculative appeal, but caution may be warranted given the many challenges ahead.
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