Why Is SoundHound AI Stock Up So Much?

Like many companies improving AI technologies and exploring ways to integrate AI into existing products, SoundHound received a lot of attention in 2024. At the beginning of the year, investors could purchase shares for about $2 each. After a brief bump, the price leveled off to about $5 per share until November, when it began a climb that took it over the $20 mark.

Although it isn’t particularly surprising that an AI company saw its stock price skyrocket this year — similar trends lifted the values of NVIDIA and Broadcom — most leaders in this sector experienced steady growth over several months. SoundHound’s success looks different because its stock price tripled in less than two months.

Below, we’ll look at some of the reasons SoundHound AI’s stock is up so much right now. Then, we’ll consider whether the company can maintain this growth and whether investors should consider buying shares.

SoundHound’s Q3 Results Wow The Market

Interest in SoundHound has actually been growing for quite a while as the company attracted more clients and diversified its revenue streams. Currently, you can find SoundHound’s voice generative AI in vehicles made by Hyundai, Kia, and other major manufacturers. Top tier chains such as Chipotle have begun to integrate SoundHound’s technology into its drive-thru ordering kiosks so customers can place orders without interacting with a human.

As more companies embrace SoundHound’s technology, the less the company has to rely on a handful of clients. A few years ago, losing one client would have damaged SoundHound severely. Today, it could rely on money from its growing roster of clients to cover the lost revenue.

These and other insights become obvious when SoundHound releases its Q3 financials in November. The documents showed exceptional growth in areas that matter a lot to investors. SoundHound’s revenue increased 89% year-over-year. Last year, 72% of SoundHound’s sales came from its biggest clients. The Q3 report shows that the client now accounts for just 12% of sales. This shift shows that SoundCloud has managed to attract a broader base of clients to diversify its mix of customers and create more stability.

Furthermore, SoundHound acquired Amelia, a leader in enterprise conversational AI. The acquisition should open up more opportunities for SoundHound to enter finance, healthcare, and insurance. Importantly, SoundHound hasn’t expanded into these sectors yet, but investors are excited that the company now has more opportunities for growth. That makes SoundHound look better as a short-term and long-term investment.

Concerns About Investing in SoundHound

Given the impressive strides SoundHound made in the last quarter, why wouldn’t everyone want to buy shares? While the voice AI company has the hallmarks of being a big long-term winner, there is enough in the P&L and revenue mix to give investors pause for thought.

First off, SoundHound hasn’t turned a profit. Of course, that’s quite common for companies undergoing such rapid growth. Consider that SoundHound spent $80 million in cash and equity acquiring Amelia. SoundHound reports $50.2 million in revenue from the last three quarters of its fiscal year. Buying Amelia is probably a smart move that will lead to higher revenues and profits in the near future. Still, the acquisition required more money than SoundHound has brought in this year. That one deal made it impossible for the company to turn a profit.

The good news is that SoundHound has lowered its per-share losses. A year ago, the company lost $.06 per share. It lost $0.04 per share in this year’s Q3. If you look at these numbers as a percentage, you see that SoundHound’s loss-per-share shrunk by about 33%. You might not like that the company can’t generate profits, but you can’t deny that it’s moving in the right direction.

Second, SoundHound is an extremely expensive stock to buy. Yes, it has a low barrier to entry, but it has a 64.8 price-to-sales ratio right now. The S&P has a 3.1 price-to-sales ratio, which highlights the risk of buying SoundHound shares.

Third, this could be a bad time to invest in high-growth companies. We’ve enjoyed a bull market for two years, creating excellent opportunities to make money in the market. That’s a bit concerning, though, because this bull market might be long in the tooth with an unprecedented rise over the past couple of years that was last seen almost a century ago.

Many analysts worry that the market will turn bearish in 2025. If that happens, you can expect the share values of most high-growth companies to plummet. As the market shrinks, investors will look for safer places to keep their money. While a small percentage of investors will see a bear market as a wonderful time to buy shares at low prices, it’s unlikely that these purchases will offset market-wide fear of loss.

Should You Invest in SoundHound AI?

With this knowledge, does it make sense for investors to put their money into SoundHound AI? That largely depends on your expectations and how much risk you can accept. Let’s look at a few scenarios so you can decide which one fits your situation.

If you don’t mind adding risk to your portfolio, SoundHound looks like a good AI technology company to choose. Although expensive from a P/S perspective, it has a low barrier to entry. At $21, practically anyone can afford to add some shares to their portfolio. The risk will only increase as the price gets higher, so now could be a great time to get involved.

If your portfolio can’t tolerate more risk, you should probably avoid SoundHound AI. This looks like a promising company, but anything could happen over the next few years. Any risk-averse investors might want to prepare for a bear market by putting their money into established companies with decades of solid returns.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.