SoundHound AI (NASDAQ: SOUN) has been a standout artificial intelligence (AI) stock in 2024, outperforming big names like Nvidia with a remarkable 154% increase in stock price. However, a recent downturn has seen the stock drop by over 47% from its all-time high of $10.25, sparking questions on whether now is the right time to invest in SoundHound AI.
The company specializes in AI technologies that enhance customer interactions, particularly in areas like drive-thru ordering and hands-free experiences in electric vehicles. Its recent financial results have been positive, showing significant revenue growth of 80% year-over-year, with sales reaching $17.1 million in the last quarter of 2023 and $45.9 million for the full year.
Despite this revenue growth, SoundHound AI is still operating at a loss, with high expenses outpacing its revenue. The company’s net loss of $18 million last quarter underscores the challenges it faces in achieving profitability. While operating expenses have decreased compared to the previous year, concerns remain about the sustainability of its growth trajectory and the need for additional funding through stock issuances, which could dilute shareholder value.
Investors eyeing SoundHound AI should be cognizant of its current valuation, trading at a premium price-to-book multiple of 130 and nearly 30 times sales. The company’s potential for future revenue growth is a key factor in investment decisions, but there are uncertainties around its ability to maintain high growth rates as competition in the AI space intensifies.
While having Nvidia as a backer provides some reassurance, investing in SoundHound AI carries inherent risks, particularly for retail investors. With a market capitalization of less than $2 billion, the company remains a mid-cap stock with room for growth but also subject to volatility. As the allure of established AI companies like Nvidia persists, SoundHound AI presents an alternative for those seeking exposure to the AI sector.
In conclusion, while SoundHound AI’s recent stock price decline may appear enticing to some investors, caution is advised due to the company’s financial challenges and the competitive landscape of the AI market. Those considering an investment in SoundHound AI should carefully evaluate the risks involved and be prepared for continued volatility in the stock.
This article was created using information from The Motley Fool and provides insights into the current status of SoundHound AI’s stock performance and the factors influencing investment decisions related to the company.
