Understanding SoundHound AI’s Roller Coaster Stock Journey

Shares of SoundHound AI (NASDAQ: SOUN) have experienced significant fluctuations in the last year. The artificial intelligence (AI) voice tech provider saw its stock drop to a 52-week low of $3.50 last April, only to rebound to a high of $24.98 by December.

However, this upward trend reversed sharply in 2025, particularly after Nvidia announced it had sold its stake in SoundHound. As a consequence, SoundHound’s stock plummeted more than 45% through the end of February.

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Is the decline in SoundHound’s share price a buying opportunity, or should investors be cautious? To assess the viability of SoundHound as a long-term investment, we will examine its strengths and challenges in more detail.

Strengths of SoundHound AI

SoundHound offers a voice-activated AI platform utilized by businesses for various applications. The technology allows for in-car voice commands, customer service interactions, and fast-food drive-through orders.

In 2024, the company underwent a significant transformation through key acquisitions that helped diversify its revenue streams, reducing its reliance on the automotive sector, which previously accounted for 90% of its income.

Now, no single vertical generates more than 25% of the company’s total revenue, offering greater resilience against economic downturns in specific industries.

SoundHound’s clientele includes major players such as Stellantis, Hyundai, Teva Pharmaceuticals, and Fujitsu. Notably, in Q4 2024, the company secured a contract with one of the largest electric utilities in the U.S.

The acquisitions led to a record revenue of $34.5 million in Q4, reflecting a remarkable 101% increase from the previous year. For the entirety of 2024, SoundHound reported total sales of $84.7 million, an impressive 85% year-over-year growth.

Looking ahead, SoundHound is optimistic about maintaining its growth, projecting sales between $157 million and $177 million for 2025. This forecast marks a substantial increase compared to the previous year’s $84.7 million and significantly exceeds their earlier estimate of $100 million introduced last year, indicating robust business growth.

Challenges Facing SoundHound AI

Despite recording a surge in sales, SoundHound has yet to achieve profitability. The company concluded 2024 with a net loss of $350.7 million, drastically up from a loss of $88.9 million in 2023, largely due to acquisition-related costs.

Additionally, these acquisitions impacted SoundHound’s gross margin, which fell to 48.9% in 2024, down from a healthier 75.4% in 2023.

Nevertheless, SoundHound’s management is optimistic, believing they can enhance operational efficiencies that will help restore gross margins back to historical levels above 70%. CFO Nitesh Sharan highlighted their plans to achieve these improvements.

Should You Invest in SoundHound Stock?

While SoundHound has been successful in their business expansion, the volatile nature of its share price remains a concern. The sell-off following Nvidia’s sale was interpreted by many on Wall Street as negative news.

However, this reaction seems misplaced. SoundHound is a partner in Nvidia’s automotive technology sector and is set to participate in Nvidia’s GTC conference in March.

Though the company is not yet profitable, its goal of restoring gross margins to over 70% suggests a commitment to reducing costs and improving efficiency, aiming for long-term sustainability.

Management took a deliberate approach by accepting short-term loss in margins to facilitate significant business expansions, a strategy that solidifies long-term prospects and aligns with their optimistic 2025 projections.

Further bolstering its position, SoundHound exited 2024 with a solid balance sheet. Its Q4 assets stood at $553.9 million and included a cash reserve of $198.2 million. Total liabilities amounted to $371.3 million, with zero debt despite recent acquisitions, underscoring prudent financial management.

Considering these strengths, SoundHound represents a potentially attractive long-term investment. The recent decline in its share price, alongside robust forecasted 2025 sales, has caused the stock’s forward price-to-sales (P/S) ratio to revert to levels seen before last year’s surge.

Data by YCharts.

The P/S ratio is a metric indicating how much investors are willing to pay for each dollar of revenue. Its recent decline points to a more reasonable valuation for SoundHound stock at the moment.

This could be an opportune moment to buy shares, but given the stock’s volatility, it is best suited for investors with a higher risk tolerance.

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*Stock Advisor returns as of March 3, 2025.

Robert Izquierdo holds positions in Nvidia and SoundHound AI. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect those of Nasdaq, Inc.